The Difference Between Independent Contractors v. Employees

Shyp, Uber, Homejoy, Postmates, Washio, and Instacart Have Lawsuits Against Them. Here’s Why

On demand marketplaces are under rapid scrutiny. Recently, the same lawyer that successfully litigated a class action against Uber, also sued other notable marketplaces such as Shyp, HomeJoy, Postmates, Washio, Instacart alleging that these companies are unfairly mislabeling employees as independent contractors. She alleges that they are avoiding extending benefits to employees and avoiding certain tax ramifications despite exercising significant control over the individuals.

The stakes are pretty high. Just to get an indication of how serious of an issue this is, FedEx was recently sued for the same exact reason and they settled the dispute for over $200,000,0000.

Not only would the companies be effected, but it would change the the view of on demand services. It wouldn’t be easy for a person that is looking for extra side money to simply sign up with a company and start delivering or driving right away because being formally labeled as an employee, creates another a slew of formalities that individuals would have to go through.

Here are some of the factors that courts will look at and here are some of the things that you should consider when hiring an independent contractor.

1. The more control an employer has over an independent contractor, the more likely the person will be labeled as an employee by a court. The lawyer that sued WashIo alleges in the complaint that drivers for Washio “As part of their contract, Washio drivers agree to an exclusivity agrranagement, in which they agree to not provide services for any similar business.” The takeaway from this is make sure that if you want to have an independent contractor, it’s imperative that you don’t use excessive control. If this is actually true, I’m sure this will harm Washio. This is the exact reason why many of the people that drive you around in an Uber are also allowed to drive you around in a nice looking mustache from Lyft.
2. How significant is the training involved? Training is indicative of an employer-employee relationship. Despite the necessity to train and educate newly hired individuals, employers have to do this within reason. In theory, independent contractors should already have the necessary skills to start working right away compared to an employee.
3. How integrated is the independent contractor with the actual service that’s provided? The IRS website provides a great explanation, “You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.” All of these services to a very high degree, dictate how their workforce operates. There are rules, penalties and fines that the workers are subject to. Postmates has specific rules that couriers have to abide by when making a delivery. Shyp has strict processes in place as to how to deliver packages correctly.

Inevitably, the more control you exercise over the individual, the less likely that they’re an independent contractor. Despite crossing slippery slopes with the law, all of these companies allow easy ways for individuals to make extra money on the side so it’ll be interesting to see how the courts in CA respond.

**** Updates: The same day this post was written, HomeJoy announced it was shutting down partly due to the lawsuits. In addition, Shype also recently announced that they are begining to classify individuals as employees.

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