Uber doesn’t want its drivers to be employees — here’s why that matters

Uber is fighting against drivers who want to be categorized as employees — and whether it succeeds could have major implications for the gig economy.

The U.K.’s Employment Appeal Tribunal ruled Friday that drivers with Uber are workers, affirming a decision made by another tribunal last year. Being classified as a worker entitles a person to more rights than an independent contractor, namely a minimum wage, but not as many as an employee. Uber had argued that drivers were self-employed, and said it plans to continue appealing the case up to the U.K. Supreme Court.

“Almost all taxi and private hire drivers have been self-employed for decades,” Uber U.K.’s acting general manager Tom Elvidge said in a statement.

Here in the U.S., Uber has similarly asserted that its drivers are self-employed. In fact, Uber has gone one step further: The ride-share company believes it is merely the go-between drivers and riders and argues that drivers are independent contractors and, therefore, the company’s actual customers. What’s more, the company told MarketWatch that the Securities and Exchange Commission has signed off on this business model.

Read more: A quarter of American drivers might be better off using Uber or Lyft than owning a car

Uber has faced lawsuits similar to the U.K. case in America. Currently, 11 cases are awaiting judgment from the 9th U.S. Circuit Court of Appeals. One of those cases, O’Connor v. Uber, has been working its way through courts since 2013 and was close to reaching a $100-million settlement last year.

How Uber’s strategy affects workers in the gig economy

The difference between being an employee versus an independent contractor is significant, said Keith Cunningham-Parmeter, a professor at Willamette University College of Law. “Depending on which side of the line you fall on, you either get this huge basket of rights or basically nothing,” Cunningham-Parmeter said.

Most employment rights do not extend to independent contractors. For instance, companies are not required to pay independent contractors a minimum wage or overtime, provide them health insurance or give them regularly scheduled breaks.

But the differences between rights someone is an entitled to as an employee — but not as an independent contractor — can be even more mundane. Independent contractors are responsible for paying their own taxes. And independent contractors aren’t necessarily entitled to unemployment or workers’ compensation unless they have paid into those funds themselves.

The divide between independent contractors and employees has taken on a renewed significance in recent weeks as allegations of sexual harassment in the workplace have cropped up increasingly across the country.

Federal discrimination laws only applies to employees, according to Workplace Fairness, a nonprofit public education and advocacy organization. And just a few states grant discrimination protections to independent contractors. Meanwhile, the nature of the jobs these people perform often puts them at a greater risk of harassment.

Also see: Uber must raise fares — and do 5 more things — to survive

Becoming an employee is not without its own drawbacks. Namely, workers in the gig economy would lose a lot of the freedoms they enjoy versus a traditional worker. “If these folks were actually employees, that would mean Uber would exert more control over what the job looks like,” TK said.

For instance, Uber might be more stringent in terms of the quality of cars that a driver could operate. More important, Uber drivers might lose the ability to set their own hours if they were to become employees.

But even these seemingly beneficial aspects to working for a company like Uber have their downsides. A recent study co-conducted by Uber found that drivers’ wages don’t really change regardless of whether fares are hiked or lowered because of how easily drivers and riders alike can opt out of using the app throughout the day.

This issue extends beyond Uber

Uber drivers are not the only ones facing these challenges. Last year, FedEx FDX, +1.50%   agreed to pay 12,000 drivers in 20 states $240 million to settle lawsuits from drivers who claimed they were misclassified as independent contractors instead of employees. The first of these lawsuits had been filed in 2005. “We could see a similar pattern with Uber and the other on-demand platforms,” said Cunningham-Parmeter.

Other more typical gig-economy employers have encountered similar legal snafus. Ride-sharing service Lyft, food delivery service GrubHub GRUB, +0.82%  and courier service Postmates have all been sued for classifying their workers as independent contractors rather than employees.

Also read: Here’s where you’ll live when self-driving cars rule the roads

While most companies in the gig economy continue to use this approach, at least one has taken a different tack. In 2015, grocery delivery service Instacart began reclassifying some of its workers as part-time employees, and the company reached a $4.6 million settlement this year with other workers who argued they were misclassified as independent contractors.

Such cases should serve as a warning to Uber to avoid regulatory and legal scrutiny and potentially large settlements, while benefiting workers. “Right now there’s a big question mark hanging over Uber,” Cunningham-Parmeter said.

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