Labor Dept. Says Workers at a Gig Company Are Contractors

from NYTs

The Labor Department weighed in Monday on a question whose answer could be worth billions of dollars to gig-economy companies, deciding that one company’s workers were contractors, not employees.

As a result, the unidentified company — whose workers, it appears, clean residences — will not have to offer the federal minimum wage or overtime, or pay a share of Social Security taxes. And while the decision officially applies only to that company, legal experts said it was likely to affect a much larger portion of the industry.

The move signals the Trump administration’s approach to the way gig companies, a growing share of the economy, must treat their work force. As companies like Uber and Lyft begin to sell shares to the public, industry officials estimate that requiring them to classify their workers as employees would raise their labor costs by 20 to 30 percent.

“Today, the U.S. Department of Labor offers further insight into the nexus of current labor law and innovations in the job market,” Keith Sonderling, an official in the division that oversees such issues, said in a statement. It is a longstanding policy for the department not to disclose the names of companies receiving such letters.

Under the Obama administration, the Labor Department issued guidance suggesting that gig workers like drivers for Uber and Lyft were likely to be employees, a stand the department rescinded several months after President Trump took office.

“There are few more contentious issues currently than the status of workers operating on platform-type business models,” said David Weil, the administrator who issued the guidance under President Barack Obama and is now dean of the Heller School at Brandeis University.

Unlike the broad guidance the Obama administration issued, the action announced Monday took the form of an “opinion letter” applying only to the company that sought it. But other businesses in the industry tend to parse such letters closely for insight into the department’s approach.

And the letters have more practical legal force than departmental guidance for the company in question. They are often referred to as “get-out-of-jail free cards” because they mean that the Labor Department won’t initiate enforcement proceedings against a company with a favorable letter.

The letter can also provide a powerful defense to the company if workers sue it or initiate arbitration proceedings to resolve allegations of improper classification.

More here.

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4 Responses to Labor Dept. Says Workers at a Gig Company Are Contractors

  1. Edward Holzel May 3, 2019 at 8:27 pm #

    The reclassification of labor laws for companies, such as Lyft and Uber, will be game-changing. Taxi companies, for example, are suffering greatly because of the rise of Uber and Lyft. Taxi companies have much higher costs because they employ employee’s and comply with regulation. This causes their prices to be much higher. Uber and Lyft operate with minimum costs. Their works just join the app and use their own cars and are not insured. That is a load of the company because the company does not have to worry about insurance. It also brings forward a double standard issue for taxi companies. Taxi companies need to be registered and follow procedures and laws in their field. Uber and Lyft comply with no regulation and their drivers are not held to any standards, except their grade based on consumers. Uber also has no real headquarters around the country. Since, they have no cars, because all the cars are owned by the workers, Uber does not have to worry about housing the cars or locations of storage around the country. Taxi companies, on the other hand, need to worry about storage because they have to follow regulations set by cities and states. Overall, the new regulation on companies, such as Lyft and Uber, will level the playing field for the driving people around the industry.
    Another company that could be affected is Airbnb. Airbnb operates by letting people rent out their homes on a user-friendly website. Airbnb has its employee’s provide the homes and housework needed to upkeep the home. Hotels are suffering from Airbnb because it is was better to get home rather than a hotel room on vacation or traveling. The costs are similar because people can find Airbnb homes that are cheaper than a hotel room. Overall, the regulations will hopefully affect many areas of work and provide an equalizing force in those areas of work, such as transportation and housing.

  2. Brandon Cassidy June 7, 2019 at 11:02 am #

    The decision to define workers at a Gig company as contractors versus employees is a very difficult decision to make. There can be arguments made for each side of the debate. One could argue that workers at places like Lyft or Uber struggle to make minimum wage, so they need to be classified as employees to ensure they receive this protection along with other benefits. On the other side of the debate one could cite that “workers had the freedom to choose when, where and how long they worked; the fact that they provided their own equipment; and the fact that the company did not have a mandatory training program.” Both of these arguments raise very good points, but I believe that we must search deeper into the problem in order to make a logical conclusion.

    I think that one of the key questions over the whole debate of how to classify employees is, how many hours each worker is putting in a week? Some workers at Uber and Lyft work over 40 hours a week and drive as their full-time job. Others may only drive a few hours a week and these workers are only driving to make some extra money on the side of their full-time jobs. I think these two workers are extremely different and the labor department must set guidelines as to what a full-time employee really is. This could be done through a simple framework that classifies workers who put in forty or more hours a week as employees and those workers who only work part time as contractors. I think that this is a much better solution to the problem than the solution proposed by the labor department, but I am sure this debate will continue to go on for the next several years.

  3. kessiah Alexandre June 7, 2019 at 10:08 pm #

    This decision made under Trump’s administration to have gig companies classify their workers as contractors versus employees is going to have a huge effect on the economy. Companies such as Uber and Lyft have workers who use this job as their main source of income. With companies considering them contractors, employers don’t have to contribute to unemployment insurance, Social Security or workers’ compensation. They don’t have to follow minimum-wage and overtime laws. This is beneficial to the companies themselves but not to the actual people out there doing the actual job. After working years at one job one would hope to have social security once retiring or if they were to lose their job or have to stop working there should be some type of benefit for them after working so tirelessly year after year for a company. They are putting their lives at risk daily for a company that cares nothing about them and proves this by their decisions made. If they get hurt on the job that already pays them little, they may not have health insurance due to not being able to afford it all alone. American citizens are required to have health insurance & Americans are trying to also save for retirement. How are they supposed to pay for these expensive necessities if their employers refuse to help? If their cars break down, they will be quickly replaced by another person with a car ready to work. These huge companies will only continue to gain larger profits while their workers struggle. I truly believe if someone is working for a company and they are working 40 hours they should be considered an employee and receive all the benefits that come along with that title. I know that these workers use a “digital network” to technically pick and choose when they want to work rather than them being scheduled for an 8 hour shift and required to be there but are they not doing the same exact thing day in and day out.

  4. Nicole Briones June 14, 2019 at 10:30 pm #

    The department of labor has recently said that workers at an unnamed gig company are independent contractors. As an accounting major, the first thing I thought about when reading this article were taxes. Being hired as an independent contractor means that you report your own taxes. But, as large as their initial check might look, they have to technically pay double the taxes because they need to pay twice as much for social security and Medicare taxes since they are technically paying both employee and employer taxes. Also as stated in the article, they are not eligible for overtime pay. Companies like Uber and Lyft pay their employees as contractors, which has decreased their expected payroll by 20-30 percent due to them not having to pay for employee taxes. But, because these two companies are planning to go public, they are being told by the Trump administration that they must report their drivers as employees and not contractors. This will increase their expenses by 20-30 percent, which they consider “significant additional expenses” and can overall decrease the company’s profitability’s. Uber and Lyft, according to the department of labor do not meet certain requirements to consider their drivers contractors. This has made their decision to go public questionable, considering that if they were required to report their drivers as employees, their revenue and overall net worth would significantly decrease. This is an issue because this is a very public matter, and many investors are questioning whether or not it is worth it to invest in these two companies once they do go public. Although Uber and Lyft drivers do meet some of the requirements of being an independent contractor, they do not meet all of them. The requirements they do meet, as stated in the article is that the workers have the freedom of when, where and how long they worked, they provided their own equipment (vehicles), and the company does not have a mandatory training program. But the drivers are not a separate business, and also Uber and Lyft do not have a good enough case because they are comparing it to the gig company that the department of labor is saying are contractors. The unnamed company has room for negotiation when it comes to pay, Uber and Lyft are given set salaries and rates. Also, there has been a lot of discussion around Uber offering health policies to their drivers, but because of this issue, this idea is completely out of the question because it will only negatively impact their argument about their drivers being contractors.
    This public dispute with the department of labor can allow Lyft and Uber to suffer a huge loss. Uber and Lyft are extremely profitable but having to pay these extra employee taxes can slowly deteriorate the companies. Also, it is terrible timing considering that the two companies want to go public and have investors buy into their company. Uber cannot afford to take anymore losses. They have paid millions in scandals within the company alone. These scandals have consisted of sexual harassment allegations, rape allegations, racism, homophobia, and even kidnapping. They also had an operating loss of nearly $3 billion in 2018 and $4 billion the previous year. Drivers have also sued Uber over wanting to be considered employees because they do not want to file 1099s and have to pay double the taxes. There are some benefits to being an independent contractor because you can write off a lot of your expenses, but being a driver, the only thing you can really write off on your taxes is your vehicle which is not enough to make up for having to play both employee and employer taxes. To settle this, Uber paid $132 million. All of these factors will plummet Uber’s stock value. As we can see from previous public scandals such as Tesla’s CEO tweeting false and undiscussed information, these scandals can drop stock values in a matter of seconds. Although Uber has replaced their former CEO who was involved in the majority of the company’s negative publicity and lack of company moral, there are still many stories that may have not come to light yet, and when they do this will continue to negatively affect their stock price. Overall, I do not think that Uber should continue to compare itself to the unnamed company when building a solid argument over this issue. Uber’s driver may or may not decide to once again retaliate in the height of this issue in order to persuade the department of labor’s decision, and if they do, this will only weaken Uber and Lyft’s case.

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