What is an Employee Nowadays?

The economy is changing dramatically in front of our eyes, but I’m not talking about the devaluation of the Yuan. I’m talking about the “on-demand economy.” This new economy is reshaping the consumer world and how goods and services are provided. Most people have heard of the ride-hailing services Uber and Lyft. But have you heard of TaskRabbit, Washio, MyClean, or Instacart? Errands, laundry, cleaning, and grocery shopping services can all be hailed now as well. This is well and good, but who exactly are the individuals who provide these new services? Are they self-employed “independent contractors” who largely decide what will be done and how it will be done? Or are they an “employee” who is largely controlled by an employer that decides what will be done and how it will be done? Consumers may not care what status is affixed to the workers in the on-demand economy, but the status matters a lot to the employee themselves and the companies that hire them. That is why the meaning of “employee” is as important as ever.

For the workers, being an employee instead of an independent contractor can entitle them to health care, dental care, 401(k) eligibility, overtime pay, and/or termination benefits, not to mention the possibility of having work-related expenses covered. For the companies, classifying workers as independent contractors saves them money, because they generally need not withhold or pay any taxes on payments to independent contractors like they do for employees. The extent of savings can be drastic. For example, when MyClean switched from an independent-contractor model to one with full-time employees, its labor costs reportedly rose 40 percent. These diverging interests have fueled important litigation over worker status.

Just yesterday, in a lawsuit against Uber involving whether its drivers should be considered employees or independent contractors, the drivers scored a major victory when a federal judge agreed to certify a class covering Uber drivers in California.[1] The judge specifically ruled that the drivers’ worker status is a common issue that is “apt to drive the resolution of the litigation.” This decision affects other workers in the on-demand economy who are currently classified as independent contractors and not employees, because it provides them with a blueprint for achieving their own employee status.

Footnote:

[1] The case is O’Connor, et al. v. Uber Technologies, Inc., et al., No. 3:13-cv-03826-EMC (N.D. Cal.).