Fisher & Phillips LLP discusses the Uber settlement and what it means for employers. They write:
For traditional businesses not in the sharing economy, this deal is a good reminder that the law favors workers being classified as something other than independent contractors. If it is a close call, a court or government agency examining your business will probably consider your workers to be employees, entitled to all the rights and benefits the law (and your policies) allow.
Just last year, the U.S. Department of Labor (USDOL) issued an Administrator’s interpretation aimed at addressing what it characterized as the “problematic trend” of misclassification, sending a signal that these cases will be an enforcement priority for the foreseeable future (read more here).
Not surprisingly, the USDOL’s guidance sets the bar high for determining whether a worker is an independent contractor, and expressly concludes that “most workers are employees under the FLSA.” The basic premise has not changed, and is essentially boiled down to these inquiries:
- Is the worker in business for himself? If yes, he is probably an independent contractor.
- Is the worker economically dependent on the employer? If yes, he is probably an employee.
In reaction to this interpretation and the Uber settlement, which will no doubt attract interest from any of your workers who may think they are not properly classified, we recommend that you:
- Be proactive and review your working relationships now before they are subject to challenge. Evaluate the risk with each of them and adjust as necessary.
- Review your third-party outsourced services to determine whether, under the USDOL’s economic realities test, these workers actually count as employees.
- Modify contracts as appropriate, adding in more protection if need be. You should consider indemnification language and other provisions shielding you from liability.
The risks associated with misclassification are great, and most companies do not have a spare $100 million in their litigation budget that would solve a class action lawsuit. For most companies, it is better to avoid a claim in the first place than to have to negotiate a blockbuster settlement agreement.