by Heath P. Straka

There’s a growing tendency for workers to request mobility in the labor market. Coupled with this is a growing tendency for businesses to classify workers as independent contractors instead of employees. This phenomenon has been dubbed a “gig” economy. Recently, Uber agreed to pay $100 million to the state of New Jersey to settle a dispute over how it classified its workers. Employers should take note.

What is a ‘Gig’ Economy?

A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements. A gig worker includes independent contractors, online platform workers, contract firm workers, on-call workers, and temporary workers. They enter into formal agreements with on-demand companies, like Uber, to provide services to the company's clients.

There’s no doubt that a gig economy has begun. Currently, 36% of American workers are independent contractors—or at least classified as such. That’s roughly 57 million workers.

With the increased tendency to classify workers as independent contractors, it’s been more difficult for states to collect employment taxes. In addition, gig workers don’t receive some important benefits based on their classification (i.e., no overtime pay or paid time off).

Settlement in New Jersey

While many businesses are already facing audits of their classification of workers, a recent development in New Jersey will likely cause employers to take an even closer look at this issue.

In September 2022, Uber agreed to pay the state of New Jersey $100 million in back taxes. New Jersey had conducted an audit of Uber’s classification of its workers and determined that they were misclassified as independent contractors when they should have been employees.

The payment covers as many as 91,000 drivers who worked in New Jersey between 2014 and 2018. The money will purportedly help provide benefits such as unemployment, temporary disability, and family leave insurance.

Bottom Line

In the last few years, many states across the country have tried to rein in gig-economy companies that depend on inexpensive and independent labor. With the current political landscape, employers’ ability to comply with rapidly changing employment laws is difficult. If you’re unsure of how your workers should be classified, consult with legal counsel.

Heath P. Straka is a partner with Axley Brynelson, LLP, in Madison, Wisconsin. His practice focuses on personal injury actions, general litigation involving employment and construction disputes and also complex litigation and class actions involving product liability claims and wage and hour violations. He can be reached at 608-283-6755 or hstraka@axley.com.