Employees of both have successfully won substantial settlements against their employers based on misclassifying the employees as independent contractors. Last week, Uber dodged a potential billion dollar bullet by settling two class action disputes brought by Uber drivers who thought they should be classified as employees instead of contractors. Uber agreed to pay up to $100 million, pending approval by the judge in the case; that approval could take months. http://www.latimes.com/business/technology/la-fi-tn-0422-uber-settlement-story.html
Uber will pay up to an initial sum of $84 million to some 385,000 drivers in California and Massachusetts who are part of the class, as well as an additional $16 million if the company's valuation hits 1.5 times its current value, after it goes public, or if it's sold. While those numbers sound substantial, Uber's current valuation now stands at $62.5 billion.
Drivers also receive the right to appeal dismissal and other disputes, and Uber agreed to make it clear that tips are allowed.
"Misclassifying workers as independent contractors
instead of employees can be a costly mistake."
Similarly, in 2013, the Penthouse Executive Club, based in New York City's Hell's Kitchen, agreed to settle a class action brought by strippers who also alleged that they should have been treated as employees instead of independent contractors. The Club agreed to pay $8 million in order to avoid further litigation over whether the Club should have paid for uniforms and cleaning (think G strings), as well as minimum wage, overtime and other benefits.
Most likely, both businesses decided to settle these cases because of the substantial consequences of classifying workers as employees, including overtime, taxes, social security, Medicaid, Workers Comp, unemployment, and other benefits.
What This Means For Managers and Executives
Misclassifying workers as independent contractors instead of employees can be a costly mistake. Many managers mistakenly believe that a written contract specifying the relationship protects them against liability, but that's a myth. Courts examine a variety of factors including whether the employer exhibits control over the work of the person, whether the work is a part of their regular business, whether workers provide their own tools, the method of payment and the beliefs of the parties.
Most important is a consideration of whether the worker is more entrepreneurial, meaning they have other clients or customers. Significantly for managers, they can have personal liability for misclassification. Both state and federal agencies charged with enforcing tax and other relevant laws have been stepping up enforcement. Class action settlements do not stop these agencies from bringing their own actions or lawsuits.
In order to protect yourself as a manager or executive, you should audit your workforce regularly to make sure that you know how your workers have been classified and consult your employment counsel to make sure that those classifications are correct. In addition, you should arrange to train all managers on these issues.