Summary of Conflict: Are the Workers Employees or Independent Contractors?
Over the span of the last two years, we have written articles that have addressed the concern with additional deliveries from retail and wholesale outlets. The increase in such deliveries, many of which have been engendered and augmented because of Covid19, have changed the landscape for the number of deliveries being made. These changes have also impacted the use of real estate, such as increasing the need for more warehouses, fulfillment centers, etc.
As a few examples of the increase in deliveries, consider that many grocery stores are now making home deliveries for orders on the web. In turn, these on-line orders have diminished the need for as much parking and other real estate needs for many retail outlets, be they grocery stores or other retail outlets.
The reduction in face-to-face meetings has eliminated the need for as many vehicle rides to a given location for the many meetings that were scheduled, prior to Covid19. Nevertheless, the number of packages being delivered relating to business and personal needs continues to grow. These deliveries are often needed to support the demands of society, when personal contact is not made by many who might otherwise frequent in person contacts at stores, meetings, office visits, etc.
Because of the changes generated by Covid19, the decrease in many personal visits for business, medical treatments, etc. has been reduced. The increase in deliveries made to meet the needs of those not leaving their home base has, as indicated, often increased for many individuals and businesses.
However, even disregarding these changes in personal driving and the increase in deliveries, all in large part generated by Covid19, there had been changes developing in the marketplace as to deliveries. There has been a steady increase in home deliveries for personal use. This result has developed in part by millennials and other groups (herein grouped as Millennials) that have chosen to move away from the prior, strong level of dependency on the personally owned automobile. Many individuals associated with such groups have chosen to accept more deliveries at home and to commute to work (if necessary), by walking, riding a bike, or by using public transportation or other means that do not involved the ownership of an automobile. Working out of the home had been a choice for many employees; that option was exacerbated by Covid19. When a given Millennial desired to utilize a vehicle for transportation, the Millennial often chosen to engage a vehicle owned by someone else. This choice has evolved in part to the selection of a ride via an Uber, Lyft or similar company. Companies needing the delivery of some merchandise or other property have also called on delivery companies to transport these items, such as home delivery of food.
In this setting, again, Uber or Uber like entities have been supplying this transportation alternative.
Implications of a Finding that the (Gig) Worker is an EE:
The question that we examined in prior articles was focused on recent IRS, state tax authorities, and others raising the question as to whether the driver of the Uber type vehicle should be considered an Independent Contractor (IC) or Employee (EE) of the Employer/Uber Type company.
We noted in prior Tips and articles that such Uber Type companies had been sued in many cases in which the governmental body and/or private party (Gig Worker0 asserted that the Uber Type company was and should be treated as an Employer (ER).
Without attempting to repeat the entire history of these developments, much of which we covered in prior Tips and articles, the following comments brings this issue to date. This allows this Tip to focus on a very recent decision in February 2021 in Great Britain, which addressed this important issue. The Employee issue is not simply a theoretical point. It has huge and practical ramifications to private parties, businesses, and the government, among others. Succinctly stated, if an Uber Type company, delivering people and/or products, is an ER of the EE (Gig Worker) delivering the person or property, there are major financial burdens to consider. The Uber Type company can, if acting as an ER, in some settings, be liable to the EE working, the government (for taxes, etc.), and third parties relative to acts by the EE for the ER.
If a worker is an EE, there are many tax issues to consider, along with related concerns. For example, there may be issues as to unemployment taxes, workmen’s compensation charges, withholding, general employment taxes, head taxes, per capita taxes, and other taxes possibly owing by the Uber Type entity, where it is classified as an ER.
The classification of a company as an ER of the worker may be the death knell to the Uber Type company. If the Uber Type company owes the EE for back pay, minimum wages, unemployment pay, retirement contributions, vacation pay, sick pay, and much more, these charges, once again, can signal the financial destruction of the Uber Type company. (It is these types of considerations, as reviewed in earlier notes and Tips, that gave rise to a position at one time for Uber, Lyft and other companies to give notice to the State of California that such companies were planning to terminate operation in the State of California, unless the State Courts and or Legislative bodies in California concluded that the Uber Type entities, including delivery companies, were not ERs.)
Reference can be made to the earlier Tips we have undertaken on this subject. The issue at hand, now, covers a recent international position on this dispute of EE v IC. This conflict is discussed, below, as to a Supreme Court decision issued from the UK.
If This Issue was Settled, Concluding the Uber Type Companies are NOT Employers, Why is this Now of any Concern?
The issue in this Tip is being revisited, as noted, because of a very recent decision in the United Kingdom. The London Central Employment Tribunal in Great Britain found that the workers, as Uber drivers, were to be treated as employees (EEs). This decision was appealed, as were other related decisions. The Supreme Court in the UK, on 2/19/2021, upheld the position that the workers were EEs. (UK SC 2019/0029).
This decision involved only 2 drivers with Uber. However, the decision will impact, potentially, approximately some 70,000 drivers in the UK. The Court concluded that the status of the drivers should be treated as employees. This conclusion impacts, said the Court, payments for such workers relative to minimum wage, paid annual leave and other workers’ rights. If this decision stands, it may mean that Uber Type companies will not undertake transportation business in the UK or possibly that costs will rise, dramatically, for the Uber Type services. The conclusion that these workers are employees means that millions of dollars will be owing by Uber Type companies. Such companies will owe for many of the taxes, noted above, and for many claims by the Uber Type Gig worker who would be treated as an EE. (For an overview article on this point, see Kerr, Dara, “UK Court Rules Uber Drivers are Employees, Not Contractors,” https://www.cnet.com/news/uber-uk-court-ruling-drivers-employees-not-contractors/ .)
The Issue is one that Impacts the International Setting:
As mentioned, above, California recently addressed this Uber Type delivery issue for workers. Although it was clear that the California government position supported the conclusion that those driving to make deliveries of products or people in the Dynamex Case (see our earlier Tip on this issue) were employees, the California Legislators backed off this conclusion that the worker was an EE. (The State of California did not want to lose the services of such companies as Dynamex and Uber.)
However, this same issue has been raised in other states in the US and outside the US. Uber worked out settlements in California and Massachusetts, among other states, on this issue for taxes, etc.
Uber has faced the same issue outside the US, as have other companies that are dealing with the demarcation of EE or IC. It remains to be seen if Uber can survive this challenge to their position that the workers are not EEs of Uber. (Uber, among other companies, must also consider this issue when they utilize drivers for other purposes, such as delivering food, as is the case with Uber Eats.)
This conflict will not be disappearing very soon as it is now being addressed both within and outside the US.
By
Dr. Mark Lee Levine,
Professor, University of Denver
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