Will California Follow New Jersey and Fine Uber For Misclassifying Workers?

It has been recently reported that the State of New Jersey is fining Uber for unpaid employment taxes and for misclassifying its workers.

New Jersey was the first state to adopt the so-called ABC test for whether a worker is properly classified as an “employee” or an “independent contractor.” California adopted the ABC test via the California Supreme Court in Dynamex Operations West v. Superior Court, 4 Cal.5th 903 (Cal. Supreme Court 2018) case. Recently, the State Assembly codified the ABC test into the Labor Code.

New Jersey’s ABC Test is less strict than the one adopted here in the Golden State. The “A” and “C” prong are similar, but the “B” prong can be met more easily. The New Jersey ABC test requires a worker to be classified as an employee unless:

  • The employer exercises little control or supervision over the worker;
  • The work performed is either (a) not part of the “core business” of the employer OR (b) the work is performed someplace other than the places of business of the employer; AND
  • The worker is engaged work that is customarily considered an independently established trade or profession

The California ABC test has no allowance for work done someplace other than a business’ usual place of business.

Based on the New Jersey ABC test, the New Jersey Department of Labor is now fining Uber for unpaid taxes and penalties. New Jersey claims that, by misclassifying its driver over the last four years, Uber unlawfully avoided nearly $525 million in taxes form. New Jersey is also seeking to impose nearly $120 million in fines. Uber is challenging imposition of taxes and penalties. As reported, Uber issued a statement in which it continued asserting its legal position that its “… drivers are independent contractors in New Jersey and elsewhere.” Uber is based in San Francisco. If Uber is successfully taxed and fined, it will have wide-ranging implications for a host of other businesses that have a similar business model.

The issue of worker classification is a hot-button issue for labor rights activists. Activists hailed the New Jersey decision. Activists argue that it is not acceptable for gig-economy business to profit on the backs of their workers. As one lawyer representing Uber workers claimed: “I have clients who are Uber drivers that are sleeping in their cars because they cannot afford the basic necessities, they can’t afford a place to live.”

Uber’s largest market share is here in the Golden State. This is true also for Uber’s main competitor, Lyft. Lyft is also based on San Francisco. Given the recent judicial and legislative action to mandate that gig-workers be treated as “employees,” it is likely that California will follow New Jersey’s lead and seek to recover taxes and fines from gig-economy companies. We here at San Diego Corporate Law will keep you updated.

Call San Diego Corporate Law Today

For more information, call corporate attorney Michael Leonard, Esq. of San Diego Corporate Law.  Mr. Leonard has been named as “Best of the Bar” by the San Diego Business Journal for the last four years. Mr. Leonard has extensive experience in drafting employee policies, employee handbooks, employment contracts, and all other contracts and agreements necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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