In recent years, a new tech-driven sector of the US economy has emerged. That sector employs an estimated 1.2 to 1.9 million workers in the United States and is referred to as the GIG economy, and it is growing every day. However, as new employers spawn left and right from clever technological innovations, so too does the possibility for wage and hour violations.
The Fair Labor Standards Act, 29 USC. 201, et seq. provides employees with the right to a federal minimum wage of $7.25 per hour and to overtime premiums for non-exempt employees at one and one half times their regular hourly rate for all hours worked in excess of 40 in a single workweek. Additionally, a number of state laws provide non-exempt employees with added protections and benefits. For example, in California, a non-exempt employee must be paid overtime premiums of one and one half times their regular hourly rate for all hours worked over 8 hours in a single day. They must be paid double time for any hours worked over 12 hours in a single day. Other state law laws prohibit certain deductions from employees’ paychecks. In short, there are a number of pitfalls for employers in the GIG economy if they utilize employees in their business model.
Getting the GIG
In order for GIG economy workers to avail themselves to the benefits and protections of the FLSA, the workers must establish themselves as “employees.” Many companies require individuals to sign agreements at the onset of the employment relationship that acknowledges the new worker is an independent contractor and not an employee. These agreements do not decide whether an individual will be an employee or independent contractor for purposes of the FLSA. The determination of whether a worker is an independent contractor or employee is based on the reality of the relationship, not the label of the relationship, and not something written into a contract by a party to a contract.
In O’Connor v Uber Technologies, Inc., Case No. 3:13-cv-03826 (N.D. Cal.), the Court denied a motion for summary judgment filed by Uber, which sought to have the plaintiff-drivers classified as independent contractors. The Court denied the motion and noted that enough evidence had been presented for a jury to weigh whether Uber exercised sufficient control over the drivers for them to be classified as employees, rather than independent contractors. The case was set for trial in June 2016, but Uber settled the case in April 2016 for $84 million dollars.
Rethinking Employee Classification
Cases like O’Connor have persuaded employers in the GIG economy to rethink how they classify their employees. For example, Zirtual, a company that provides virtual assistants to professionals, reclassified all of its independent contractors to employees. Other companies continue to fight the legal battle of whether their business models properly utilize independent contractors or if they use employees. For example, GrubHub is currently in litigation over that precise issue in a lawsuit filed in 2015 in California. The company is currently awaiting a ruling from the court on whether their drivers are employees or independent contractors.
For now, the decision of independent contractor or employee isn’t one-size-fits-all; it is based on a number of factors that analyze the totality of the relationship between the parties and the control exercised by the alleged employer. However, if the factors favor employee status, the putative employer could be facing a very expensive lawsuit for their misclassification of the workers.
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