Employers Struggle to Properly Classify Employees in the 21st Century, Using 20th Century Laws

Since the birth of the National Labor Relations Act in 1935, there have been two classifications of workers: employees and independent contractors. Courts have used the same test since that time to determine which category a particular worker falls into. Generally under the test, those who are under employer control, and who depend on wages from a particular employer for income, are employees for whom employers are subject to laws regulating minimum wage, employment taxes, insurance, and other benefits. Employers do not owe these responsibilities to independent contractors. Independent contractors are those workers who are not under the control of a particular employer; but rather, use their own equipment, set their own price, and control the details of when and how they achieve work.

Employers must choose how to classify workers, but the old test does not address the complexities of the modern-day workforce. Well-meaning employers often struggle over properly classifying workers who do not fit neatly into either category. Choosing incorrectly can be costly by either increased, unnecessary overhead, or by protracted litigation, and potential for financial consequences including potential for tax liability, penalties, and back pay.

One recent example of the dilemma employers face can be observed in the recent ongoing litigation aimed at determining whether drivers for services such as Uber or Lyft are employees or independent contractors. The question is not an easy one, and as a California judge presiding over one of the cases put it, the jury deciding the case, “will be handed a square peg and asked to choose between two round holes.” The drivers use their own vehicles, and choose their own hours and routes. Despite these characteristics, which suggest an independent contractor relationship, the services issue rules to drivers that aim to control certain details of the job; and some drivers depend completely on driving for a particular service for income, which suggests an employer-employee relationship.

The unresolved issues in the Uber and Lyft cases are not unique today, since increased use of technology in jobs has given workers more flexibility in controlling the details of accomplishing work. The difficulties that cases like these pose indicate that it is time for legislative updates to our labor laws so that they may better serve modern-day employers and workers.

The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters, including those relating to drafting discrimination policies, for almost sixty years, and are available to discuss these issues and others.  As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.

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