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guidance suggesting that gig workers like drivers for Uber and Lyft were likely to be employees, a stand the department rescinded several months after President Trump took office.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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6 Comments

  1. 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. 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. 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. 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.

  5. Contracting is one of the ways many Americans make a lot of money quickly. My father, for example, has been a computer programmer for more than 30 years. For a short period of time, a company got him jobs contracting. He made double the pay he was making at his full-time job, mainly because he had to take care of his own benefits. The money was great, but after only three short months, the company he was working for as a contractor ended the project suddenly and just like that he was out of a job and in need of a new income, especially since my mom retired because of her MS nearly 20 years ago and my sister was in college, with me following shortly. Because of this, he decided to stick to full time jobs despite the fact that my mom’s insurance covered all of us and he was making half of what he did. The main reason he switched was to find the optimal level of job security he was looking for. With two kids going to college and only one parent that is able to work, job security is just that much more important than the money that job gives. For him, there was little room for error. Unfortunately, most people labeled as contractors in the gig economy can’t make this decision. If an Uber driver wants to leave Uber in search of better benefits at the expense of their earnings, they have very little options. Very few towns have taxi services, especially now that companies like Uber and Lyft are becoming more popular. In this case, the driver would have to either find another part time job in which they could climb the ladder to a full time job, or they would have to go back to some sort of schooling, whether that be college, trade school, or some other option.
    The question that needs to be asked then is: in what way is a company responsible for the decisions of those who work under it, even if they can’t necessarily be described as workers? You see, if you want to get down to it, companies like Uber really can be described as the middle man. They only have a few jobs and, from that, the drivers have to supply their own car, GPS system, and the like. Their sole responsibility is to connect drivers with new customers. Then, the money goes to the driver, with Uber get a portion of their pay for allowing the driver to use their site to contract themselves. However, could the two exist without the other and does that affect the labeling of the drivers? My dad could have applied to contract at the job he could, but the contracting management company made it easier for him to open up his options. Because of this, he had to pay them in order to continue because they were doing something for him that he probably could have done for himself. For gig-workers like Uber drivers, on the other hand, it is not so easy to come up with your own income. It would be much easier for them to find a job elsewhere that may pay similarly. Uber would not exist without its drivers, but I don’t think that’s at all an important distinction. Of course they couldn’t, but neither could a contract management company without people to contract out to jobs. The drivers, however, given the lack of full-time taxi services in most medium to small towns, would have to source out another profession. Again, though, does this mean that Uber owes the drivers anything? Well, if you bring up the fact that Uber is essentially selling a rare commodity to its drivers, then quite possibly they do. They’ve been targeted recently as one of the companies at fault for not giving their drivers their full tips. That makes them a company, in my opinion. The only places you really ever see that happening is at restaurants, where the workers work often part time jobs and are not contractors. If Uber truly was distinct from its drivers, they would not take a section of their tips in addition to a portion of their pay, they would one take a small portion of their pay. I would be curious to know if the anonymous company mentioned also has the same practice, since a couple other driving and food delivery services have bee accused of the same practice.

  6. I believe the decision for gig workers to be considered as contractors and not employees was the right decision. When thinking about how the gig economy operates, it is understandable why these contractors are not considered employees. Using driver services like uber or door dash as an example, these contractors are able to select the jobs that they want, when they want. Each job is treated as a separate contract, where the compensation is based on the job, not the amount of time it takes to complete. The contracts are allowed to shop for jobs that they like better, and then select one thus agreeing to the terms of the contract.
    If the government decided to consider these independent contractors as employees, where would the line be drawn? Would you then start having to offer your “handyman” a benefits package for changing your lightbulb? The original idea of the gig economy was to offer workers the ability to be their own bosses. When you are your own boss there is no one offering you benefit packages, insurance programs, or anything. The idea that gig workers should be given more benefits from the companies that assign them jobs does not make sense since they are not employees. I do believe that these companies need to treat their workers better than they currently do, but this argument does not make sense. Another argument for these workers to be considered independent contractors and not employees is that a lot of these workers have other full-time jobs. The whole idea for a company such as Uber was that the driver can give rides at their convenience in order to make a few extra bucks here and there. This type of work, while it can be a living, was not supposed to be someone’s sole source of income.
    Overall I feel that the government did make the right decision in their ruling. If they had ruled in favor of these workers being employees we would see a dramatic increase in the prices for these services, which many people would not be willing to pay for. It would have ultimately led to the fall of this very new industry which affords thousands of people the ability to make a few extra bucks here and there.

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