The New Jersey Department of Labor (NJ DOL) billed Uber Technologies, Inc. and a subsidiary $650 million for past-due taxes, interest, and penalties due to an alleged misclassification of its drivers as independent contractors rather than employees. The NJ DOL claims this bill covers unemployment and disability insurance taxes owed for four years.
According to an Uber spokesperson’s comment to Bloomberg Law, the company plans to challenge the NJ DOL’s preliminary determination because it believes the drivers are properly classified as independent contractors. Following recent public statements by Governor Phil Murphy, the NJ DOL indicated that it plans to crack down on worker misclassification in the state. A finding that Uber workers are employees rather than independent contractors will have broader implications for companies outside of just receiving an unpaid tax bill from the state. For instance, companies also could be subject to state wage and hour laws requiring a minimum wage and time and one-half payments for overtime hours worked. Wage and hour laws also require employers to keep records of employee time. Additionally, businesses could be responsible for providing health and retirement benefits if the workers are classified as employees.
On April 29 of this year, the U.S. Department of Labor issued guidance related to these types of “gig” workers that went the other way. The U.S. DOL explained that entities operating in the “virtual marketplace” by acting as a “referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation…” would appear to be engaging independent contractors rather than employees; this was based on the application of factors used for an independent contractor determination under federal law. Additionally, in May of 2019, the National Labor Relations Board’s general counsel issued a memo explaining that Uber drivers are independent contractors, not employees, under the National Labor Relations Act.
Uber and other gig companies have tried to fight off state legislation related to how they must classify their workers. The companies lost that battle most recently in the California legislature. Now they will need to fight that battle in New Jersey, albeit in a different forum. Because New Jersey uses an aggressive version of the ABC Test, this could be an uphill fight. For independent contractor classification, the ABC Test basically requires an entity to show that it does not control the work of the individual and that the services performed by the individual are not within the company’s usual course of business.
Classification disputes involving Uber and similarly structured businesses have escalated to litigation in various jurisdictions. Uber has settled many of those cases—only a few resulted in a final judgment. Before passage of the recent California legislation specifically addressing the issue, a federal court denied summary judgment on similar claims under California law. In contrast, a federal court in Pennsylvania granted summary judgment in Uber’s favor on claims for misclassification under federal and Pennsylvania law. The appeal of that decision is pending before the U.S. Court of Appeals for the Third Circuit.
Companies should be mindful about how they structure their independent contractor arrangements in New Jersey and many other states. Now that states are enacting legislation on these issues, businesses should be aware of those additional barriers to independent contractor status and should monitor developments in the states where they work. For now, we suggest reevaluating the structure of any independent contractor relationships and making sure they comply with the law in each state the business operates.