Employee Misclassification

Uber and Lyft are both facing lawsuits in federal court that challenge their designation of drivers as “independent contractors” rather than employees. As reported in a recent Los Angeles Times article, “the companies claim to be only the cyber middleman between drivers and customers, but they also set stringent work rules and can fire drivers; their large workforce may be entitled to be treated as employees.”

The misclassification of employees as independent contractors is getting more and more widespread across many different industries. As the Los Angeles Times aptly states, “at hair salons and manicure establishments, at janitorial services and home care agencies, this old trick is posing real risks to our system of labor and employment laws.”

Employers receive huge benefits by avoiding employment-related obligations to the detriment of misclassified workers. Among other things, “independent contractors” lose their right to minimum wage, overtime pay, meal and rest breaks, and reimbursement of work-related expenses. Employers also avoid paying their part of Social Security and Medicare taxes, with this tax burden being shifted onto the “independent contractors.” Misclassified workers are also not protected by federal and state laws prohibiting discrimination and harassment of employees.

In 1993, 7% of workers were classified as independent contractor. Economists estimate that this number will grow to 20% by 2020. As more and more employers resort to mischaracterizing their employees as independent contractors to improve their bottom line, pursuing a claim for misclassification is often the only recourse.