Business Litigation Alert: "Worker Misclassification - Contractor vs. Employee"

On-Demand services – like Uber and TaskRabbit – are surging in popularity.  However, at least one issue is currently restraining the on-demand economy: worker misclassification.

Uber is currently facing a lawsuit from drivers claiming that they are in fact employees, not contractors, and are entitled to reimbursement for expenses like gasoline costs.  The on-demand home cleaning service Homejoy closed its doors over a worker misclassification lawsuit.

Even Hillary Clinton has jumped on the misclassification bandwagon, bringing the issue into the Presidential race. 

In light of the on-demand worker controversy, the Labor Department issued guidance on how to determine whether a worker is an independent contractor or an employee under the Fair Labor Standards Act, stating that most workers do actually qualify as employees under the FLSA definitions. 

Given all this recent attention, your company needs to make sure that all of its employees are properly classified to avoid costly lawsuits and potential problems with the IRS.  So, how do you really know if a worker is a contractor or employee?

  1. One of the primary considerations when determining whether a worker falls in the contractor or employee category is how much control the company has over the worker's services and how they are performed. The more control a company has, the more likely the worker will be considered an employee.
  2. A second factor to consider is whether the worker conducts services that are a core part of the hiring company's business.  If so, this could indicate that the worker is operating as an employee as opposed to an independent contractor.
  3. Companies must also look at "intent."  Did the worker intend to set up the relationship as an independent contractor from the beginning, or was the intent to create a more employee-like relationship with the company? If the worker established the working relationship with the intent of operating as an independent contractor, it would be unlikely that an issue over whether the worker is an employee would arise.

Any company who uses independent contractors should be examining these relationships to ensure that they do fall into the contractor category, and that the workers are not, actually, employees.  Given the increased attention being paid to this issue, there are sure to be more lawsuits to come.

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