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New Jersey Rules Uber Drivers Are Employees

November 15, 2019

By Steve Wishnia

The New Jersey DOL has determined that Uber misclassified drivers at a cost of $523 million.

TRENTON, N.J.—The New Jersey Department of Labor has assessed Uber for almost $650 million for failing to pay unemployment and disability taxes for its drivers.

The department charged that Uber evaded $523 million in taxes over the past four years by misclassifying its drivers as independent contractors instead of employees, according to letters sent to the company and a subsidiary that were obtained by Bloomberg Law through an open public records request. It also charged Uber $119 million in interest and penalties.

A Labor Department spokesperson told LaborPress that it could not comment on specific cases, but that cracking down on employee misclassification was a priority for Gov. Phil Murphy’s administration. The department would not say whether it had also investigated Lyft.

“Over the past year alone, misclassification has cost New Jersey businesses $300 more per employee because of employers not properly funding the Unemployment Insurance Trust Fund,” state Labor Commissioner Robert Asaro-Angelo said in a statement Nov. 13. “Our 244,000 employers who play by the rules should not have to give a free ride to those who don’t.”

Uber said it would fight having to pay. “We are challenging this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere,” spokesperson Alix Anfang said.

The company also said the $650 million figure overestimates its revenues in the state “by many multiples.”

The Labor Department says that any “person who is paid to perform a service is presumed to be an employee,” unless they meet all three prongs of what’s commonly called the “ABC test”: They are free from control or direction over the performance of the services; they perform those services outside the usual course of the employer’s business or outside the employer’s places of business; and they are customarily engaged in an independently established enterprise. 

Misclassified workers, it adds, are deprived of overtime pay, unemployment and temporary disability benefits, earned sick leave, health and safety protections, and more. They also have to pay both the worker and employer’s share of Social Security and Medicare taxes.

“There is no reason temporary, or on-demand workers can’t be treated like other employees who work flexible hours for short durations,” Asaro-Angelo said.

Uber claims drivers are not part of its core business, arguing that it’s an app that connects drivers and passengers, not a taxi service. In a memo issued in April, the National Labor Relations Board accepted that logic, saying that the drivers were independent contractors because they did not work developing or maintaining the app, but used it as a “referral system.”

The NLRB also said that drivers had “entrepreneurial freedom,” because they could set their own hours, work for other companies, and either profit or lose money. 

“This is illogical, since almost every part-time worker has the freedom to moonlight or pursue a new venture,” the Economic Policy Institute responded in a September report. It noted that drivers can’t set fares or seek or reject passengers on their own, and they can be “deactivated” by the company’s algorithm.

California, however, enacted a law in September that uses the ABC test to define whether a worker is an employee or independent contractor. The New York state Senate held hearings on the issue last month, and Sen. Diane Savino (D-Staten Island) said several times that cab drivers should be defined as employees.

“We call on New York legislators to follow the examples set by New Jersey and California and ensure that the same employment laws apply to Uber as to any other company,” the New York Do It Right Employment Classification Test Coalition, an alliance of 32BJ SEIU, the New York Taxi Workers Alliance, and several other unions, “worker center” organizing groups, and labor-law organizations said in a statement Nov. 14.

In New York, NYTWA executive director Bhairavi Desai said in a statement, the state Department of Labor has ruled that Uber and Lyft drivers are employees eligible to collect unemployment benefits, but it has not audited the companies and required them to pay into the state’s unemployment-insurance fund. Instead, drivers seeking to collect benefits have to apply individually and “jump through hurdles.”

The New Jersey Labor Department would not say how it came up with the $650 million assessment. In general, it says, when it audits employers, it expands the investigation if it finds workers have been misclassified, and determines how much the company owes for contributions to unemployment and disability insurance. If a business refuses to cooperate, “investigators make a good-faith estimate using available records and public information.” 

It said that audits of 1% of New Jersey businesses had found $14 million in unpaid contributions last year, so the “true cost of employee misclassification could be as high as $1.4 billion.”

Desai praised the department’s action, saying that it “sends a message that even in markets where Uber and Lyft have tried to argue that driving for the company is only meant to be supplemental income (code for a second job) and therefore drivers don’t need labor protections (code for let them eat cake), states are willing to uphold 81 years of labor law to say all workers are entitled to equal rights under the law regardless of the number of hours worked or number of jobs held. It’s a stinging rebuke of the architects of the gig economy, and we hope it permeates across other sectors.”

November 15, 2019

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