In a recent court case in California, Uber and Lyft were both ordered to reclassify their drivers from independent contractors to employees under the law. This would require a fundamental change to their entire business model and make the service largely unrecognizable.
Contractor Vs Employee
Before discussing if Uber drivers should be contractors, it is important to understand the differences between contractors and employees both in terms of what classifies either one and how employers must treat them differently.
- Employees have a regular wage with taxes taken out while contractors are paid by the project and they deal with their taxes themselves.
- Employees are told when, where, and how they do their work while contractors choose how much they work, when, and how they do the work and are generally under much less control.
- Employees receive employee benefits such as health insurance, worker’s compensation, severance packages, and anti-discrimination protections while contractors receive none of these benefits.
When a person is considered an employee by the government their employer is required to provide the previously mentioned benefits and provide a set regular wage. This would fundamentally change how Uber and Lyft operate because drivers are not given a schedule, regular wage, have taxes taken out of their pay, nor are they given benefits.
California Contractor Differences
California has a unique stipulation on determining if a worker is a contractor or not that other states do not have, and that is that California decided that if a worker does the activity that is core to the business then they are an employee. For example, an electrician being hired to fix the wiring at a retail store does not contribute to the core business and is a contractor, but a bakery hiring a cake designer to be a contractor from home does contribute to the core business and that person would need to be an employee. Therefore, it is California that is forcing Uber and Lyft to make these changes rather than any other state or federal mandate.
Uber and Lyft’s Next Steps
A few days ago, Uber and Lyft were given the ability to temporarily continue operations in the same way they had been while they push this decision to an appeals court, but they are required to come up with a plan of action to shift their drivers to employees by September just in case they lose. The suggested plan that Uber has come up with is by utilizing a franchise model in which a third party would give set schedules to drivers, set their wages, and tell them when and where they drive and turn it into essentially another taxi in California.
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