The Gig Is Up: Uber Agrees to Pay $100 Million in Dispute Over Drivers’ Employment Status

There’s a growing tendency for workers to request mobility in the labor market. Coupled with this is a growing tendency for businesses to classify workers as independent contractors instead of employees. This phenomenon has been dubbed a “gig” economy. Recently, Uber agreed to pay $100 million to the state of New Jersey to settle a dispute over how it classified its workers. Employers should take note.

What Is a ‘Gig’ Economy?

A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements. A gig worker includes independent contractors, online platform workers, contract firm workers, on-call workers, and temporary workers. They enter into formal agreements with on-demand companies, like Uber, to provide services to the company’s clients.

There’s no doubt that a gig economy has begun. Currently, 36% of American workers are independent contractors—or at least classified as such. That’s roughly 57 million workers.

With the increased tendency to classify workers as independent contractors, it’s been more difficult for states to collect employment taxes. In addition, gig workers don’t receive some important benefits based on their classification (i.e., no overtime pay or paid time off).

How Has Wisconsin Responded?

In April 2019, Wisconsin Governor Tony Evers created the Joint Enforcement Task Force on Payroll Fraud and Worker Misclassification. It released its most recent report in the summer of 2022.

Per the report, the task force directed other state agencies to continue to investigate and work with the Wisconsin Department of Justice to prosecute violations of misclassification laws. It also recommended that certain statutes should be amended, specifically, ch. 183 of the Wisconsin Statutes. It recommended the statute should be amended to:

• Require the disclosure of all members and managers of domestic and foreign Limited Liability Companies (LLCs);
• Include a false filings provision and penalty; and
• Provide for limited enforcement authority by the Department of Financial Institutions to investigate and refer violations to Wisconsin Attorney General.

The task force also directed the state’s Department of Revenue and Department of Workforce Development to create and adopt a unified worker classification questionnaire.

Settlement in New Jersey

While many Wisconsin businesses are already facing audits of their classification of workers, a recent development in New Jersey will likely cause Wisconsin employers to take an even closer look at this issue.

In September 2022, Uber agreed to pay the state of New Jersey $100 million in back taxes. New Jersey had conducted an audit of Uber’s classification of its workers and determined that they were misclassified as independent contractors when they should have been employees.

The payment covers as many as 91,000 drivers who worked in New Jersey between 2014 and 2018. The money will purportedly help provide benefits such as unemployment, temporary disability, and family leave insurance.

Bottom Line

In the last few years, Wisconsin and other states across the country have tried to rein in gig-economy companies that depend on inexpensive and independent labor. The task force in Wisconsin will likely help reshape the business models of companies like Uber, but there are likely many legal battles ahead. With the current political landscape, employers’ ability to comply with rapidly changing employment laws is difficult. If you’re unsure of how your workers should be classified, consult with legal counsel.

Heath Straka is a partner at Axley Brynelson, LLP, in Madison, WI. He can be reached at hstraka@axley.com. 

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