There are some questions in life you never realize are so difficult to answer until they are asked. Why do I turn down the car radio when I’m looking for a particular street sign? Why do birds fly in a V-shape formation?
Last week my daughter hit me with: What’s infinity?
And then there’s: What’s the difference between an employee and an independent contractor?
On the surface, this isn’t a tough one. Independent contractors are self-employed. The end.
Not so fast. The IRS uses what they call a “20-factor test” to determine if someone is an employee or contractor based on the amount of control the company has over the contractor. Too much control, and you’re a employee and covered by employment, labor and tax laws.
This assessment is still not so cut and dry and states statutes typically do a bad job of establishing any definition. The IRS tells business to weigh factors and offers: “Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no ‘magic’ or set number of factors that ‘makes’ the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.”
Wait. What was that? I may use some of that language to describe the definition of infinity to my daughter. “There are no magic set of numbers to make infinity.”
I got caught in this wormhole after reading an interesting blog by BakerHostetler’s Todd Lebowitz. Apparently two federal judges in California sent this question to juries rather than answer it themselves. Todd’s interesting point was two judges with presumably a lot of legal experience sent it to a bunch of people with presumably none, and their decision means nothing more than determining whether these businesses owe newly minted “employees” millions and flipping business models upside down.
Oh, the business involved here are Uber and Lyft. You may have heard of them. Each filed for summary judgment and were denied. Interestingly, the judge’s comments in the Lyft case sound a lot like the start of this blog. He said, “At first glance, Lyft drivers don’t seem much like employees…But Lyft drivers don’t seem much like independent contractors either.”
It’s actually very interesting, and I know it’s is an issue central to executive risk. Lyft and Uber do not control when the drivers work but they certainly have a lot to say about how they perform their job. The class of plaintiffs, former Lyft drivers, want to be paid as employees. Nothing is black and white and to follow Lebowitz’s point, the courts–at least in California–are passing this on to the people to decide.
“If juries are going to be deciding worker classification issues instead of judges, the ability of companies to follow the law is going to become harder, not easier,” he wrote.
