Are the people who supply equipment and work for Uber, Lyft, etc independent contractors or employees? Shannon Liss-Riordan feels the later is true and she's making a case of it.
But as Liss-Riordan looked more closely at Uber’s business model, she realized there was a much larger legal problem looming: namely, the company was built on the backs of so-called “1099 employees”—drivers who formed the base of Uber’s operations, but whose income was counted as 1099 freelancer income for tax purposes. Uber claimed these drivers were fully independent and had control over their own work schedules — even making a point of calling them “driver-partners” instead of simply “drivers” — but the company also gave them strict guidelines for participation which made them look like employees according to the IRS’s 20-prong test. Uber screened and trained its drivers, and drivers could get deactivated by Uber for having their rating dip below what local managers set as a cut-off, for not accepting a certain percentage of trip requests, or for customer complaints. In one case, says Liss-Riordan, a driver was fired for “not showing respect” to Uber staff.
Liss-Riordan smelled blood. She realized that if Uber’s drivers were reclassified as normal W-2 employees, rather than 1099 independent contractors, Uber would be required to pay payroll taxes for them, and provide them with benefits like workers’ compensation insurance and unemployment. In some states, such as California, Uber would also be required to reimburse drivers for the costs of the job, including gas, wear-and-tear on their cars, and car insurance. If Uber had indeed misclassified its drivers, the company’s entire business model was built on a legal mistake.
“Just because your services are dispatched through a smartphone doesn’t make you a technology company,” she said in a recent telephone interview. “You’re a car service, and you have the responsibilities of being an employer of the people driving the cars.”
(at tip of the hat to Suzi)