One of the sharing economy's money-saving practices -- classifying workers as independent contractors -- is up for renewed scrutiny in the wake of a California ruling that Uber misclassified at least one of its drivers who legally should be treated as an employee entitled to expenses and other reimbursements.
And while Uber is appealing the $4,152 ruling in favor of driver Barbara Ann Berwick, it's certainly not the first case of its kind. Just last week, Fedex (FDX) announced it reached a $228 million settlement with 2,300 delivery drivers who had been classified as independent contractors rather than employees. In January, another California judge ruled that truck drivers in the ports of Los Angeles and Long Beach are employees, not independent contractors, and seven are owed more than $2 million in damages.
A report issued last week by the Economic Policy Institute noted that 10 percent to 20 percent of employers misclassify at least one worker as an independent contractor, meaning they're ineligible for benefits such as the minimum wage, overtime, unemployment insurance and workers' compensation.
"Misclassification is most common in industries where it is most profitable (such as construction, where workers' compensation insurance premiums are high), and in industries with scattered worksites where work is performed in isolation. Housecleaning, in-home care, and trucking are industries in which misclassification is particularly common," the EPI report states. "New 'sharing economy' businesses create cause for concern about possible misclassification because it is unclear how 'autonomous' these workers really are."
Stephanie Luce, a professor of Labor Studies at City University of New York's Joseph S. Murphy Institute for Worker Education, said the Uber ruling could have a major impact.
"Employers have been increasingly shifting the risks of the employment relationship onto workers - whether in the form of classification as independent contractor, or moving to on-call scheduling, shifting from defined benefit to defined contribution pensions (or to no pension at all), and so on," she said in an email Thursday. "Workers and worker organization have been resisting and fighting back - not just in the U.S., but in other parts of the world (similar issues are happening in Europe - and Uber is also engaged in similar legal battles in many other countries)."
"I think the ruling is significant both because of its impact on such a large and growing global company (Uber), but also for the possible spillover effects to so many other industries that have been moving in the same direction of attempting to evade the legal responsibility of the employer/employee relationship," Luce said.
The ranks appear to be growing in the "1099 economy," named for their independent contractor tax forms they file instead of W-2s. A study released in September concluded there are more than 53 million Americans doing some type of freelance work, including 21.1 million independent contractors. That study, conducted by the independent research firm Edelman Berland, was commissioned by the Freelancers Union and Elance-oDesk.
The EPI study says the impacts of more independent contractors have other consequences. "When workers are misclassified, federal and state governments lose out on revenue from income taxes. Federal and state unemployment insurance, worker compensation, and disability insurance systems are adversely affected," the report states. "Employers who play by the rules are disadvantaged by higher labor and administration costs relative to employers who misclassify."
Five-year old Uber now operates in 300 cities in 57 countries. Rich with venture capital, it's valued around $50 billion.
And while the public may know Lyft as Uber's main rival, there are many others. In New York City alone, there are at least 75 different apps a passenger can use to arrange for-hire car service, according to Rodney Stiles, director of research and evaluation at New York City Taxi and Limousine Commission.
While Uber bills itself as a technology company that lets passengers and drivers use its app to set up rides, it has also been working to create model legislation in some states to help regulate the industry, Ashwini Chhabra, head of policy development for Uber Technologies, said last week at a "Sharing Economy" workshop convened by the Federal Trade Commission.
He said Uber has also been working with the insurance industry to offer drivers more coverage options. Nine different insurance agencies are offering for-hire coverage policies in 11 states including Allstate, Geico, Farmers, Progressive and USAA, Chhabra said.