Wrongful Classification of Employees as Independent Contractors – Will Tech Companies Fare Better Than Transport Companies?

Screen Shot 2015-11-30 at 7.18.26 AMBy Cheryl Lee

What do Uber, Amazon and FedEx have in common? They are all multibillion dollar companies using independent contractors for transport and have faced or are facing lawsuits alleging they wrongfully classified employees as independent contractors.

Generally, independent contractors are cheaper for companies to hire. Employers do not have to offer benefits like health insurance and 401(k)s, pay overtime or give paid days off, cover the employer share of their payroll taxes, or withhold income taxes. Independent contractors essentially run their own business with autonomy to decide when, where and how to do the work assigned. They have the freedom to take on projects with other companies.

A former Washington State Uber driver, Joshua Fisher, filed a $44.5M class action lawsuit against Uber on October 12, 2015, to seek damages on behalf of more than 15,000 Uber drivers in Washington state who had driven since 2011. Top among Fisher’s allegations is that Uber treated him like an employee but wrongfully classified him as an independent contractor. A former Uber driver filed a similar lawsuit in California, and in September a federal judge in San Francisco gave the go-ahead to a class-action lawsuit.

Amazon launched its Prime Now, a one and two-hour delivery service, in major cities across the country. Four former Orange County, California, delivery drivers for Amazon Prime Now service sued Amazon and Scoobeez, Amazon’s contracted courier service provider, alleging that they should have been classified as employees with full benefits rather than independent contractors. According to the complaint, Amazon set the schedules for the drivers and controlled virtually all aspects of their work. Additionally, the plaintiffs were required to wear a uniform indicating they were Amazon Prime Now representatives when they made their deliveries.

These lawsuits could be riding on the coattails of recent court decisions, settlements and actions taken by the U.S. Department of Labor in response to complaints from workers alleging misclassification. On October 3, 2014, the Kansas Supreme Court issued an opinion that hundreds of truck drivers who delivered packages for FedEx in Kansas were employees of the express delivery company and not independent contractors. The deciding factor for the court was FedEx’s significant control over the drivers. On July 8, 2015, the Seventh Circuit Court of Appeals sided with the Kansas Supreme Court stating that the truck drivers are employees, not independent contractors. Despite the differences in state laws, the Kansas Supreme Court decision likely influenced FedEx’s decision to settle with California drivers in June of 2015, for $228 million. With over 19 class-action suits against FedEx in different states, many which were initiated as early as 2003, FedEx has not used the independent contractor model since 2011.

The U.S. Department of Labor offered guidance on how it interprets the tests to determine whether a worker should be classified as an employee or independent contractor. The Administrator’s Interpretation No. 2015-1 memorandum on July 15, 2015 expressed the DOL’s belief that “most workers [classified as independent contractors] are employees under the FLSA’s (Fair Labor Standards Act) broad definitions.” Although not legally binding, the DOL’s memorandum is significant because courts often give deference to an agency’s interpretation of a regulation that the agency is tasked with enforcing.

The ability to utilize independent contractors is integral to the business model of companies like Uber and Amazon, which are considered to be technology companies instead of transport companies. Unlike transport companies like FedEx, Uber and Amazon do not directly employ drivers nor do they own or maintain vehicles used as part of their service. There is no doubt the tech world will closely monitor the lawsuits which could call into question the business model of these tech firms facilitating transactions in the sharing economy.

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