California isn’t the only state that Uber has to worry about these days. Amid the ongoing debate over whether Uber and other gig economy companies should be classifying their employees as independent contractors or employees, New Jersey’s labor department has hit the ride sharing company with an approximately $650 million fine for unpaid employment taxes. New Jersey believes that Uber has misclassified its drivers as independent contractors when they’re actually employees, resulting in a four-year backlog of unpaid unemployment and disability insurance (plus interest). “The New Jersey Department of Labor and Workforce Development is cracking down on employee misclassification because it stifles our work force and inflicts a huge financial toll on our economy,” Labor Department Commissioner Robert Asaro-Angelo said in a statement.
According to Bloomberg Law, which first reported the fine, New Jersey has been after Uber for years, first ordering them to pay $54 million in unpaid taxes in 2015. (It is unclear whether Uber ever paid the bill.) New Jersey has particularly stringent rules when it comes to classifying workers as independent contractors vs. employees, using an “ABC” test that requires employers to show that it doesn’t control an independent contractor’s work and that the service provided by the independent contractor is outside of the company’s “usual course” of business. Nevertheless, misclassifying employees as contractors is a far-reaching problem: Per the New York Times, a 2018 audit in New Jersey of just one percent of the state’s employers found that more than 12,000 workers had been misclassified, resulting in millions of unpaid taxes and more than $462 million in underreported wages for those workers alone. Uber, which took a hit on the stock market over the news of New Jersey’s fine, has vowed to fight the fine, disagreeing with the state’s assessment of its workers. “We are challenging this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere,” Uber spokeswoman Alix Anfang told Bloomberg Law.
The New Jersey ruling isn’t the first attack on gig economy companies by state governments, coming as California’s AB5 law prepares to go into effect January 1 and other states like New York mull similar legislation to more strictly prevent employee misclassification. (The federal government, for its part, has issued a memo saying that Uber drivers are correctly classified as independent contractors in their view.) The company has also faced attacks from their drivers themselves, who have filed their own lawsuits against the company contesting their non-employee status. But New Jersey’s multi-million dollar demand marks a major escalation in how governments are choosing to hold these companies accountable for their misdeeds. “It’s a stinging rebuke of the architects of the gig economy, and we hope it permeates across other sectors,” New York Taxi Workers Alliance Executive Director Bhairavi Desai said in a statement. “New Jersey is sending a message that the state’s labor laws aren’t dictated by corporations.” And the state’s action against Uber could be just the beginning. Attorney Shannon Liss-Riordan, who has sued Uber on behalf of drivers, told Bloomberg Law that she “expect[s] we may see more of this” when it comes to other state governments following New Jersey’s lead. “Uber and Lyft, by misclassifying drivers, are harming not only the drivers but also the states and the public at large,” Liss-Riordan said. “The money that they’re not paying into the unemployment and disability systems is being picked up by the states and the taxpayers.”
Of course, Uber, Lyft, and other companies aren’t going to back down voluntarily, setting up a brewing battle between the gig economy and the governments determined to challenge the business model at its core. Uber—whose costs per driver could go up by more than 20% if they’re classified as employees—has been moving aggressively to defend its bottom line amid the new governmental efforts to re-classify the company’s employees. The company spent $30 million lobbying against AB5 and plans to similarly lobby against any New York legislation, and is relying on misleading scare tactics to dissuade drivers from wanting employee status, warning that it will result in less flexibility and more restrictions on their work. When the company’s efforts proved unsuccessful and AB5 passed, Uber doubled down on its resistance. The company said that it didn’t believe it would have to comply with the California law—supposedly because Uber drivers are not a core part of the company’s business—and is still negotiating for an exemption, as well as plotting a proposed ballot measure to put the issue to California voters. But New Jersey’s newest action means Uber now has a bicoastal issue on its hands that carries a multi-million dollar price tag. Uber may have deep pockets and an unwavering belief that its classification is correct—but as the company and the gig economy at large faces a brewing national resistance, will that be enough?
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