After I was laid off from work a few months ago, I decided to go back to school and finish my degree. I'll need to earn some money, but I want my hours to be flexible. I'm considering becoming a driver for a ridesharing company, so I can work a lot during the evening and school breaks, but take time off during exams and classes. A friend of mine is a driver for Uber, and she makes pretty good money. But she also has to pay her own taxes and pay for gas, insurance, etc. Her contract says she is an independent contractor, not an employee. What does this mean?
Uber and other ridesharing companies have been in the news a lot lately for this very reason. Some of the drivers whom the companies had classified as "independent contractors" have sued or filed claims with state agencies, claiming that they are actually employees. This might not seem like a big distinction; after all, the driver still does the work and gets paid for it. But it makes a huge difference in how the driver is treated legally.
For employees, but not independent contractors, employers must withhold taxes, must comply with minimum wage and overtime laws, and may be required to reimburse certain business expenses. Employees are also eligible for unemployment, while independent contractors typically are not.
The test for determining whether someone is an independent contractor or employee depends on which agency is making the determination. The analysis also varies from state to state. However, in general, a true independent contractor is someone who is in business for himself or herself. The individual typically has a number of clients, does specialized work, uses his or her own tools (and sometimes employees) to the job, and moves on when the work is over. On the other hand, an employee is someone who does work that is essential to the company's business, is supervised and trained by the company, and uses the company's resources and equipment.
In a recent case, California's Labor Commissioner held that an Uber driver was actually an employee, even though the company called her an independent contractor. In making this decision, the Labor Commissioner emphasized that a worker who is providing the very services on which the company makes its money is generally an employee. The Uber driver was performing work that was central to Uber's services - picking up passengers and driving them to their destinations. Without its drivers, the company couldn't function. Other factors also pointed towards independent contractor status, including that drivers were subject to detailed rules and could not negotiate prices.
Florida reached a similar decision regarding a ridesharing driver, and other cases are percolating through the legal system elsewhere. It's not clear how the federal government or other states will ultimately decide this issue. But for now, ridesharing companies that treat drivers as independent contractors are on questionable legal ground.