Popular email services such as instagram, door dashand Amazon fees recently made headlines when they announced they were delivering on minimum wage promises to drivers by cutting pay and using tips to make up the difference. In other words, customers were tipping under the impression that drivers were getting tips on top of the delivery costs earned per trip, but instead companies subtracted the value of those “tips” from payments. they had promised the workers – saving the company the money, but the cheating drivers. (Under pressure, Instacart recently reversed its policy.)
Why can these companies get away with such behavior, especially in states like Washington where minimum wage tipping is illegal? The answer is that these workers are not employees. They are independent contractors, and employment law for independent contractors is very different from that for employees. As self-employed, they are entitled to fewer protections, but also, in theory, to a greater degree of freedom and control.
Some of these same workers argue that they are misclassified by their employers and should in fact be considered employees. This issue has been the subject of significant litigation, such as in 2016, when Uber was accused of misclassifying workers in California and Massachusettsand again in California in 2018, where workers won a lawsuit against the delivery company Dynamex. Now some states, including California, are trying to address the issue with new legislation.
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Misclassification occurs when companies misclassify a person who acts as an employee as an independent contractor. States and agencies have their own standards – such as, for example, when deciding employment status for workers’ compensation purposes – and the IRS has its own 11 point standard. A much simpler rule was however applied in the Dynamex case: the ABC test. The court found that to be considered an independent contractor, an employee must meet three criteria.
The first is the absence of control: independent contractors decide how, when and where they work, set the conditions of their employment and are not given very specific instructions during their work. The second is the performance of work outside the scope of business of the company. Further, the work reflects an established, independent trade or specialty in which the worker is “habitually engaged”. For example, a plumber is “ordinarily engaged” in work related to the installation, maintenance and repair of plumbing.
In another example, a florist’s shop might hire a tax preparer as an independent contractor, relying on an adjuster who sets their own terms and hours to perform work that falls outside of normal business parameters. from the florist. But if the florist hired someone to work in the store arranging the flowers, that person would likely be considered an employee.
The rise of the “gig economy,” sometimes known as the 1099 economy in reference to the tax forms used to report the “miscellaneous” income of independent contractors, has highlighted the problem of misclassification, but this n is not new. The misclassification was a huge historical problem in the construction industry, as well as for domestic workers, janitors, truck drivers and many others. Nearly 24 million workers worked as independent contractors in 2015 and only a small slice, about 1 percentwere gig economy workers.
For businesses, there is a clear advantage to using independent contractors: they are much less expensive to maintain. Companies do not have to pay unemployment insurance, workers’ compensation or payroll taxes. Overtime and minimum wage do not apply, nor do state and local requirements for paid family or sick leave. They also don’t need to provide benefits like paid time off, retirement funds, or health insurance.
Independent contractors assume all the risk of running a business, which is sometimes out of desire and design. Tax preparers and freelance journalists, for example, may prefer the flexibility of freelance contracts, and companies with periodic specific needs that fall outside of their normal job, such as a company that hires experts for tax advice. of diversity and inclusion, benefit from these types of independent contractors.
However, companies also refer to workers who operate as regular employees as contractors: if you deliver packages for Big Package Company in a BPC shirt, show up on an hourly schedule, follow specific routes, and you have other aspects of your daily work. professional life dictated by BPC, you are an employee — as a court determined in 2015 in the case of a very real fixed price company: fedex. Even if you also moonlight for Rival Package Company doing similar work, you are still an employee.
“Misclassifications limit people’s ability to negotiate while companies act as employers and control how work is done,” explained Erica Smiley of Jobs With Justice.
Workers are not the only ones affected by misclassifications. The practice is also anti-competitive, harm law-abiding businesses treating employees as employees, assuming the responsibilities and additional costs that come with it. “It’s just another way corporations shift the burdens onto workers and taxpayers,” says Steve Smith of the California Labor Federation.
This is just another way companies shift the burdens onto workers and taxpayers.
Gig economy jobs often come with great promises of profit and are marketed with a language used to describe freelance contracts, such as the ability to set your own hours and select your clients. Employees are not paid by the hour in many cases, but on the job; the more jobs they can accumulate, the higher the salary.
On the ground, The reality is very different, whether you’re a cleaner with Handy or a courier with Postmates. Companies pretty much dictate terms of employment, and in some cases have even created their own version of the company store, as companies like Uber and Fastwho have started selling and renting vehicles for their “subcontractors”.
States such as Massachusetts, New Jersey, and now California is trying to address this issue with laws that clearly define the distinctions between employees and independent contractors. California AB5, for example, would codify the Dynamex decision. Of course, these laws do not magically eliminate the practice of misclassification or instantly reclassify workers, but they do add additional guidance on the subject and create tools that workers and union organizers can use in negotiations with employers.
In other regions, worker-organizers have focused on issues relating to working conditions themselves, such as compensation and access to benefits, rather than the issue of misclassifications. It happened in New York, washington state and elsewhere – although it should be noted that many of these focus specifically on the gig economy.
The drive to clarify the definition of independent contractors could benefit both workers and employers, and it could also be very disruptive for the tech industry. While the gig economy accounts for a relatively small percentage of misclassified workers, Smith said, “What you see with the gig economy are companies building an entire business model around misclassification. “
Even as lawmakers consider codifying protections, the National Employment Law Project finds these companies are a driving force behind a wave of “marketplace platform” legislation across the United States that explicitly defines gig-economy workers as independent contractors, not employees. A venture capitalist shamelessly told CNN“What is ultimately a better business decision? To try to change the law in a way that you think is right for your platform, or to make sure your platform fits into existing law? »
Building an industry by normalizing misclassifications and sometimes pushing workers to stand up for their own rights, as seen with the smiling workers of the gig economy shilling for their bosses, is a dangerous and troubling trend. Businesses are quick to claim that codifying independent contractor status would be “ruinous”, but they have also said the same about the minimum salary, protect the right to collective bargaining, and other measures designed to improve the health and safety of workers, and yet, one way or another, capitalism prevails. Companies that cannot meet their operating costs fall and others rise to replace them.
“Some businesses,” Smiley commented, “maybe they don’t deserve to exist in a modern society.”