Companies can save a lot of money by using independent contractors, rather than hiring employees. Companies are required to withhold taxes and help pay Social Security and health insurance for their employees, but they have no such obligation to independent contractors. Instead, independent contractors are often paid either an hourly rate, or on a piece-rate (i.e. per job) basis. They are required to cover all their own business expenses, including any tools and appliances they might need to perform their jobs, and maintenance on those tools and appliances.
Companies are not free to classify just anyone as an independent contractor. Workers have to meet certain requirements in order to be classified as independent contractors. They have to be able to make their own hours, control what they wear to work, and control the environment they work in. Being able to choose how to work and whom to work with are also important aspects of being an independent contractor.
Lyft, an on-demand ride-sharing company, is now facing a wage and hour class action lawsuit from a group of its drivers. The drivers are classified as independent contractors, but they allege they are misclassified and should rightfully be classified as employees. Lyft is seeking to have the lawsuit dismissed, saying the drivers are independent contractors because they control when and how much they work.
The drivers argue they can be deactivated without notice. They are also allegedly told how to interact with passengers and can be terminated if they fail to follow those instructions.
The rise of the Internet and smartphones has created working relationships and environments that had never been seen before. App-enabled firms, such as Lyft, are just one example of employment opportunities that didn’t exist a decade ago. Whereas state and federal labor laws were designed to govern employees in traditional working relationships, cases like this one might force legislators to make some changes to those laws.
The wage and hour lawsuit was filed in U.S. District court in San Francisco. Judge Vince Chhabria, at the recent hearing involving Lyft and its drivers, said the current labor law is “woefully outdated” when it comes to being able to govern app-enabled firms.
If the court ends up ruling in favor of the class of plaintiffs, Lyft will be forced to pay their drivers for overtime, unemployment insurance and workers compensation. They’ll also have to pay drivers for the cost of gas, auto insurance, and maintenance on the cars – all expenses the drivers are currently made to pay out of their own pockets.
The combination of the recent recession and the rise in app-based firms like Lyft has resulted in a significant increase in companies relying on independent contractors to do everything from run errands to data entry. A ruling against Lyft in this case could have significant consequences for similar companies, many of which are based in California. If California does decide to update its employment laws, other states and even the federal Fair Labor Standards Act (FLSA) might follow in its footsteps.The Chicago overtime lawyers at the Chicago Overtime Law Center are investigating unpaid overtime claims against new app based employers, such as as Lyft and Uber, for allegedly misclassifying employees as independent contractors, and otherwise failing to pay workers for overtime and other wages. If you are the victim this practice call us at (312) 869-4095 or contact us online