What do construction companies, strip clubs, and services like Uber and Lyft have in common? The answer is that they’ve all been sued for trying to skirt the law by treating their workers as contractors instead of employees—a long-standing issue that is being exacerbated by the rise of the so-called sharing economy.
Doing so is great for employers but potentially terrible for workers. There are lots of legal perks that are tied to being an employee: minimum wages, overtime benefits, health insurance, workers compensation for those hurt on the job, unemployment benefits for those who are laid off, proof of employment for those trying to rent or get a loan, and, perhaps most significantly, lower taxes (workers who are “independent contractors” have to pay the employer’s share of payroll taxes). When employers choose to call workers contractors instead, it absolves them of these legal obligations, and saves them tons of money. A 2012 report from the National Employment Labor Project estimates that between 10 and 30 percent of employers were incorrectly labeling their workforce.
This problem, known as worker misclassification, isn’t new and it happens a lot, and in pretty broad, disparate fields of work such as construction, delivery services, and yes, adult entertainment. In April, a judgment in favor of workers in Utah and Arizona forced construction companies who were labeling workers as independent contractors, instead of employees, to pay more than $700,000 in back wages and damages.
But the emerging sharing economy makes it easier to muddy classification categories, especially because of the heavy reliance on new technology. According to Shannon Liss-Riordan, an employment attorney who has worked on issues of worker misclassification for more than a decade, and who is currently suing both Uber and Lyft for the same issue, the problem stems from an organization trying to misrepresent their central function in order to avoid additional requirements and expenses. “A lot of these new so-called technology companies aren't technology companies. Uber and Lyft are car services, and Homejoy is a cleaning service, and Postmates is a courier service.” She says that when it comes to hiring, these companies say that they are simply connecting contractors providing the services with clients who want them, which is a misrepresentation, akin to when Fedex claimed to not be a delivery company or when strip clubs claimed that they were simply bars, that happened to have naked women dancing in the background.