$649 Million Fine For Uber In New Jersey As Gig Economy Faces Pushback From State & Local Governments

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When is a worker an employee and when is a worker an independent contractor? That question is getting intense scrutiny as state and local governments push back against the freewheeling, if it feels good do it ethos of the so-called gig economy. In theory, the internet makes it possible for people to work without a boss, making money by doing things for other people using an app based system that matches those who want something done — like getting a ride from downtown to the airport — with those who are willing to provide the desired service.

Uber app
Image credit: Uber

That’s all well and good, but no matter how you slice it, companies like Lyft, Uber, GrubHub, DoorDash, Amazon, and dozens of others get a huge advantage over traditional employers because they don’t pay all the taxes, fees, and assessments that normal employers do. Recently, California passed new legislation making Uber and Lyft drivers employees and not independent contractors, the first shot in the battle to give gig workers some of the same benefits traditional workers enjoy, things like earning a minimum wage and access to unemployment insurance. New York, Washington, and Oregon are about to follow California’s lead.

The state of New Jersey recently sent a bill to Uber demanding it pay $649 million in unpaid unemployment taxes from 2014 through 2018. That sum includes more than $100 million in interest. Uber disputes the charges. Alix Anfang, a spokesperson for the company, tells the New York Times, “We are challenging this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere.”

Robert Asaro-Angelo, the head of the New Jersey Department of Labor and Workforce Development, says his department “is cracking down on employee misclassification because it stifles our work force and inflicts a huge financial toll on our economy.” Industry analysts say the labor costs of companies like Uber and Lyft could rise by 20 to 30 percent if they were required by regulators or courts to treat drivers as employees.

Now the New Jersey Senate is considering legislation that could restrict when some businesses are permitted to classify workers as independent contractors. As employees, they would be entitled to basic protections and benefits such as overtime pay, health care, and unemployment insurance.

Labor advocates are thrilled with New Jersey’s position. “It’s a stinging rebuke of the architects of the gig economy, and we hope it permeates across other sectors.” Bhairavi Desai, the executive director of the New York Taxi Workers Alliance, said in a statement. “New Jersey is sending a message that the state’s labor laws aren’t dictated by corporations.”

Roosevelt N. Nesmith, an attorney in Montclair, NJ, has filed a class action lawsuit on behalf of several Uber drivers. Uber controls when and how much the drivers can work, but does not pay them overtime, Mr. Nesmith tells the Times. In some weeks, after subtracting the costs of operating their cars, the drivers don’t earn minimum wage, he claims. “Uber has sufficient controls over the work of the drivers such that they should be deemed employees.”

Uber claims all its drivers have signed a contract that requires them to submit any legal disputes to arbitration, but Nesmith counters that they often drive customers to international airports which means federal law, which prohibits mandatory arbitration clauses, applies. Uber, naturally, sees the situation differently.

New Jersey is not likely to get its $649 million any time soon, but there is no question that the rules governing the gig economy are evolving. Justin Swidler, a lawyer in Cherry Hill, NJ, also represents some Uber drivers. He says many of them like the flexible schedule their work allows but do not consider themselves independent contractors. He says that if you ask the drivers, “Do you think you’re running an independent business that isn’t dependent on Uber, you’ll universally get a no.”

If you look at what the drivers are earning and compare it with what companies like Uber and Lyft are grossing, it’s hard to say the drivers are getting the better of the bargain. The gig economy rocketed to prominence starting about 10 years ago. At first, all the power was held by the companies, but now the pendulum is swinging back in favor of the people doing the actual work. Maybe that’s not such a bad thing.

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Steve Hanley

Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. He is proud to be "woke" and doesn't really give a damn why the glass broke. He believes passionately in what Socrates said 3000 years ago: "The secret to change is to focus all of your energy not on fighting the old but on building the new."

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