On Tuesday, ride-sharing behemoth Uber filed an appeal against the certification of a class-action lawsuit that represents a direct shot across the bow at the company’s business model. The final outcome could have far-reaching impact on employment law in the United States.
A five-year-old technology company, Uber has turned the taxi industry on its head by letting people catch rides using its app and promising nicer cars, shorter wait times, and automatic payments.
The San Francisco-based company has faced roadblocks from cities and unions but has grown rapidly to meet customer demand. According to the ruling on the class-action suit, Uber has 160,000 drivers in California alone. Yes, 160,000.
The lawsuit claims Uber treats their contract drivers like employees without giving them the benefits and stability of traditional employment. Keeping their drivers classified as independent contractors is essential to Uber’s business model, which could be on shakier ground than previously thought if the numbers leaked by Bloomberg News earlier this summer are to be believed. Fast growth appears to have come at a steep price.
If we look only at the surface, the Uber case seems like just another lawsuit around employee classification. In a highly publicized case back in 2000, Microsoft paid out $97 million to settle a lawsuit with temporary workers who claimed they had been doing the same job—creating the world’s most used operating system and software—as the company’s employees. After the settlement, Microsoft completely revamped how temporary workers operate within the company.
FedEx also settled a lawsuit brought by temporary workers, in this case drivers who delivered packages for them in California. The company created a $228 million fund to settle claims that it had misclassified the drivers as temporary workers.
But the Uber case is different. And the stakes are higher, affecting far more than just Uber drivers.
Here’s the big difference between this lawsuit and earlier cases: this one can impact the “gig economy,” which has accounted for the majority of jobs added since the end of the Great Recession.
The “gig economy” is loosely defined as workers who don’t have one employer but instead have numerous freelance jobs (gigs). With the growth of companies like Uber and Taskrabbit, more and more workers are joining the gig economy and being classified as contingent staff instead of as employees.
The data regarding the gig economy is confusing and tough to understand, but Fast Company unearthed a trend that tells the clearest story. Their data show that growth in the number of IRS 1099 forms, which companies use to report compensation paid to freelancers and contingent workers, is outpacing growth in the number of W-2 forms filed for traditional employees.
With this sector of our job market growing at such a significant rate and responsible for overall job growth, the Uber case now has much more at stake for companies who hire independent contractors. If these firms have to reclassify their workers as employees, costs will skyrocket. Companies will then need to re-examine how they staff their businesses and rethink relationships with their workforce.
Independent contractors and freelancers don’t receive health coverage, vacation time, and 401k benefits, which makes their use an attractive business model for companies that offer such benefits to traditional employees.
There are other kinds of benefits for independent contractors, however. In the case of Uber, drivers can choose when they want to work, where they want to drive, and what other jobs they want to take in the gig economy. They can also drive for Lyft, make deliveries for Postmates, or even fill in for a missing guitar player via Bandmix.
And if those activities take them away from driving for Uber for an afternoon, a day, or a week, Uber doesn’t mind. They can plug back in whenever they’re ready. That kind of flexibility and control is hard to find in a traditional job environment.
Regardless, companies who depend on “1099 workers” will be watching this case closely, as will those who thrive on the kind of jobs that doesn’t require them to be at work on someone else’s schedule.
The rest of the country should be watching, too, to see how it affects the evolution of employment, and quite possibly the health of the overall economy.
Courtesy of GongTo / Shutterstock.com
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