The Gig is Up: Lawsuits Challenge Misclassification of Workers

by Linda Stewart, NWJP Volunteer
Photo by Farhan Amoor (freeimages.com)

With 50 million people, an estimated third of U.S. workers, identifying as something other than full-time employees, a significant number of the work force will feel the impact of recent lawsuits against “gig economy” employers who are cutting costs by hiring most of their workers as paid “per gig” independent contractors rather than full-time employees.

These start-ups have found a niche in the marketplace by providing platforms (i.e. apps) that connect consumers with services (rides, cleaning, deliveries, and event standing in line to wait for highly valued tickets or a new iPhone), that can be performed by anyone willing to be at the beck and call of others. But on-demand companies aren’t just inventing a new business model where they can control their employees with extensive detailed instructions, incentives, and rankings based on monitored performance; the new model also allows them to take a hands-off approach to taxes and benefits. Furthermore, if gig economy workers want to ask for more, they do not have the legal protection to unionize as regular employees do.

In a bid to win more rights for gig economy workers, Massachusetts-based labor attorney Shannon Liss-Riordan is alleging the misclassification of employees by on-demand companies in 11 separate complaints against Uber, Lyft, Washio, Homejoy, Handy, Instacart, Postmates, Shyp, DoorDash, GrubHub, and Caviar. The idea of misclassification is key to Liss-Riordan’s argument in each lawsuit because it is this manipulation that allows gig employers to skip the obligations—social security, unemployment, workers compensation, payroll taxes, and health insurance, not to mention paid time off—that come with hiring traditional full-time employees.

Catering to the post-recession entrepreneurial spirit, the so-called 1099 companies (a reference to the 1099 tax form independent contractors receive from those they contract with) are technology-based, owning few assets and hiring few full-time employees.  Probably the best known of these companies, Uber, has emerged preeminent in 2015, increasing in value by $36 billion in just one year to an estimated $50 billion.  After just six years in business, Uber is worth more than another familiar technology-based success was at the same point in time—Facebook.

Uber attracts drivers who appreciate the flexibility, the promise of high starting wages, and the availability of work in a competitive hiring environment. Some use their Uber gig as a supplement to other jobs. But when workers sign up with companies like Uber, they discover hidden costs. Since Uber doesn’t take out money for taxes, drivers must set aside the money themselves.  Drivers also pay for their own car insurance policies, and need to upgrade that policy from personal to commercial.  Another expense is wear and tear on the driver’s car.  One driver profiled by The Seattle Times estimates that his final earnings average about $3/hour once he subtracts the necessary costs.  Drivers accept these additional costs like independent contractors, yet they must abide by Uber’s policies, such as the one against accepting tips as though they are employees.

Uber drivers could be making a good wage if not burdened by costs previously borne by employers. University of Massachusetts economics professor Gerald Friedman suggests that “the rise of gig labor calls for new initiatives in social policy because it shifts more of the burden of economic risk onto workers even while removing gig workers from many of the employment-bound New-Deal-era social insurance programs.”  Lawsuits against on-demand companies are one of the few effective ways that gig workers can protest this shift since they are not represented by unions.  It’s difficult for gig workers to organize because they likely do not know each other and don’t occupy the same physical space as office and factory workers do. As things stand, gig workers are in a category apart from “employee” and “independent contractor” with none of the full benefits of either of these traditional classifications.

So what new social policies may be on the horizon? One of the most basic is representation. In an effort to improve conditions for Uber and other drivers in Seattle, the City of Seattle is considering legislation that will allow a non-profit organization to represent qualifying drivers as they bargain over pay and working conditions. Such representation could protect workers who ask for improvements. Illustrating the difficulty individuals have speaking out against a 50 billion dollar technology company like Uber, the Uber driver of the $3/hour profit profiled by The Seattle Times actually lost access to his Uber app after he voiced complaints during a press conference.

Another organization supporting Uber drivers and other gig economy workers is the National Employment Law Project (NELP) which is proposing that even 1099 workers be afforded minimum wage, social security, state workers’ compensation, unemployment insurance funds, and the right to organize.

Pushback against powerful gig employers has recently achieved some measure of success. A September 2015 challenge to the on-demand economy was given the green light when a California Court allowed a class-action lawsuit against Uber to go forward; Uber argued unsuccessfully that their drivers should not be treated as one class because drivers have such varied relationships with the company.  The court, however, will allow four named drivers to stand in for the 160,000 behind the lawsuit.

In Oregon, Labor Commissioner Brad Avakian issued an advisory opinion last October concluding that drivers in transportation networks such as Uber and Lyft are considered employees, not independent contractors. While the opinion has been called premature (no cases have been brought forth to test the opinion yet), Avakian has made it clear that the six factors under the economic realities test "illustrate how Uber drivers are not operating their own separate businesses with the degree of autonomy one expects with an independent contractor. To the contrary, [the actions of the drivers under their labor agreement with Uber] are all characteristic of an employment relationship."

Interestingly, in response to legal action, on-demand companies Shyp and Instacart have decided to switch some or all of their contractors over to employee status voluntarily. Cleaning service Handy, which faces two lawsuits with core issues similar to the one against Uber, has already scaled back what they demand of their cleaners in a bid to clarify their workers’ status as independent contractors, allowing more freedom in scheduling jobs and methods of cleaning. And Managed by Q, an on-demand cleaning and maintenance start-up, has hired all of its employees as W2, not 1099 from the onset because they “really wanted to reward performance, to train and nurture people.”

But gestures like Handy’s may not go far enough. “I cringe because I’ve heard a number of commentators suggest there maybe should be a third way, maybe not everyone is either an employee or independent contractor,” says attorney Liss-Riordan, discussing the suit against Uber with the Boston Globe. “Essentially that kind of discussion is about letting companies like Uber, at latest count a $50 billion company, off the hook for ensuring labor protections for its workforce. Why do we as a society want to let companies like that off the hook? For better or for worse, we made a decision many decades ago that companies have an obligation to make sure workers have certain minimal protections: minimum wage, overtime, workers’ comp, unemployment.”  The outcome of the class action lawsuit against Uber, which may take years to resolve, is sure to be influential as similar technology companies and their masses of independent contractors are watching closely to see if those minimal protections will apply to gig workers. In the meantime, we’ll continue to support unions, fight for worker protections, and stand with misclassified workers.


Linda Stewart is a Portland-based writer. She started volunteering for NWJP in 2015.She can be reached at lindastewart3545@gmail.com.