N.J. tax bill could signal new Uber driver classification
The state says Uber's drivers are misclassified as independent contractors and demands $650 million in unpaid unemployment and disability taxes.
Uber’s battle to defend its business model amped up this week with a report that New Jersey has declared the company’s drivers are misclassified as independent contractors. The state is demanding $650 million in unpaid unemployment and disability taxes.
Already fighting accusations on the legislative and litigation fronts that its drivers are misclassified as independent contractors, the New Jersey action is a harbinger of an increasing focus on Uber’s practices by state and federal taxing authorities, said Shannon Liss-Riordan, the Boston lawyer who brought misclassification suits against the ride-hailing company in Massachusetts and California.
“I’m expecting we’re going to see more of this,” Liss-Riordan said. “State governments across the country as well as the federal government are losing out massively on tax contributions from companies like Uber. So, as I’ve been saying in my years-long battle against Uber, it’s not just the drivers who are being hurt. It’s the government, it’s the taxpayer, it’s complying competitors.”
“Uber has made clear it’s fighting for its life. It’s doing everything it can to fight off misclassification claims as long as it can. It’s very adept at stretching out the proceedings,” Liss-Riordan said.
Follow the money
The report said New Jersey had been seeking unemployment taxes from the company for at least four years.
An Uber spokeswoman, Alix Anfang, said New Jersey’s demand for $650 million grossly overestimates the volume of the company’s business in the state. She said the company’s negotiations with New Jersey officials about payroll taxes were at a preliminary stage in a multiyear process.
“We are challenging this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere,” the Uber spokeswoman said in a statement.
Uber is already facing a class action on behalf of New Jersey drivers who claim they are wrongly classified as independent contractors. In September, the U.S. Court of Appeals for the Third Circuit threw out an arbitration clause in that case, Singh v. Uber, and reinstated a suit seeking overtime pay and declaring expenditures for tolls, gas and mobile phone expenses an unlawful constructive deduction. And in California, lawmakers recently passed a “gig worker” law requiring Uber to classify drivers as employees.
Federal-level action
News of the Department of Labor’s efforts is good for those Uber drivers who lose their jobs and want to collect unemployment, said Justin Swidler of Swartz Swidler in Cherry Hill. He represents plaintiff Jaswinder Singh and a class of Uber drivers in the New Jersey suit. Uber drivers sometimes lose their jobs for reasons that can’t be considered misconduct, such as receiving low ratings from customers, Swidler said.
The Department of Labor’s position in the tax dispute also lends credibility to the argument being made on behalf of class members in the Singh case, said Swidler.
“It adds further fuel to the point that the New Jersey ABC test supports the idea that these individuals are employees,” said Swidler. “I don’t know yet how these proceedings will play out. I don’t know what facts Uber or the state will show. Certainly I would be surprised if there’s no relevance between the tax case and [the drivers' class action].”
Under the ABC test, adopted by the state Supreme Court in the 2015 Hargrove v. Sleepy’s ruling, a worker is presumed to be an employee unless the employer can show that, first, the employer neither exercised control over the worker nor had the ability to exercise control in terms of the completion of the work. Second, the services provided must either be outside the usual course of business or be performed outside of all the places of business of the enterprise. And third, the individual is customarily engaged in an independently established trade, occupation, profession or business.
The New Jersey tax collection effort is a sign that Uber faces a reckoning for its labor practices, said Rebecca Kolins Givan, an associate professor in the School of Management and Labor Relations at Rutgers University.
Day of reckoning at hand?
“It’s a statement that these companies can’t just define legal categories in whatever way is most profitable to them. It’s also an important statement that wage theft is not just theft from the workers, but from the state,” Givan said.
“Right now, Uber exists because enough investors think it’s a good bet. Its current business model is built on a shaky foundation. It’s premised on profiting from misclassification and on patient investment.”
Gov. Phil Murphy’s administration has declared an aggressive battle against misclassification. Murphy created a task force on employee classification in 2018 and this July his task force gave a glimpse of the approach he intends to follow. The task force report said it will employ targeted education and public outreach, closer review of state contracts and coordinated interagency enforcement.
New Jersey also seeks to address the issue through legislation. A bill to protect certain employees from being misclassified as independent contractors passed the New Jersey Senate Labor Committee on Thursday. S-4204, sponsored by Senate President Stephen Sweeney, D-Gloucester, passed by a 3-1 vote. An Assembly version of the bill is scheduled for a hearing Monday.
“This is a pro-worker bill for the new gig economy,” said Sweeney, a union iron worker by trade and the son of a southern New Jersey labor leader, in a statement Thursday after the bill was voted out of committee. “It will codify into law existing regulations and close a loophole that has allowed for the misclassification and exploitation of some employees. It’s all about protecting the rights of workers.”
S-4204, introduced on Nov. 7, would, among setting out other requirements, mandate that workers could not be deemed exempt from employee status for performing work “outside of all the places of business of the enterprise for which the service is performed,” said the release.
“The businesses that don’t play by the rules aren’t paying into the unemployment fund or the disability fund, which raises costs for workers and all other businesses,” Sweeney said. “It shortchanges everyone else.”
Suzette Parmley contributed to this report, which originally published on law.com.
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