WOULD YOU BET A QUARTER BILLION DOLLARS THAT THOSE ARE INDEPENDENT CONTRACTORS WORKING FOR YOU?

        The California Attorney General announced a settlement withLyft totaling $272,500,000 in restitution and penalties of which $237,075,000 will go to Lyft drivers working between April 5, 2016, and December 15, 2020.  

        California sued Lyft claiming that Lyft had misclassified its drivers as independent contractors and thereby attempted to bypass wage and hour laws that provide for minimum wages and mandatory overtime pay.

        Many of my own clients have claimed that they have no employees, only independent contractors. Some believe that merely because they pay those employees on an IRS Form 1099 without taking taxes out, that renders their workers independent contractors. IRS reporting has nothing to do with properly classifying employees.

        The thing is that both the Fair Labor Standards Act and state wage and hour laws apply to anyone who is “suffered or permitted to work....” The question arises as to whether independent contractors are being "suffered to work" versus merely engaged in one-off or occasional transactions with the hiring entity.

        Both Federal and state courts look at things like whose tools are being used, who is directing activity, where the activity is done, the employees’ ability to “create their own market,” and other similar inquiries about the nature of the relationship between worker and hiring entity.

        In California in particular, the applicable test was enunciated in the 2018 California case of Dynamex Operations West, Inc. v. Superior Court. While the test has undergone some changes in the intervening years, including legislatively, it asks 3 basic questions.

          • Is the worker free from the control and direction of the hiring company in performing the work, both under the contract and in reality?

          • Is the worker performing tasks that are outside the usual course of the hiring company's business?

          • Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature?

        If the hiring entity cannot answer all three of these questions in the affirmative, the worker is deemed an employee and not an independent contractor.

        Looks like Lyft blinked rather than face a judicial finding that all of its drivers were employees. A suit remains pending against Uber.

        The moral of the story is that the determination of whether a worker is an employee or an independent contractor is not necessarily something the employer decides on their own. It’s definitely not something worth betting a quarter of a billion dollars on without running it past an employment lawyer.