In our coverage of the on-demand economy, we’ve focused on the importance of lawsuits that could determine that service providers are employees rather than self-employed, single-person-owned small businesses.
Yesterday (4/21/2016), the poster-child for the on-demand economy, Uber, announced that it has agreed to a major class-action lawsuit settlement with drivers in California and Massachusetts. If approved by the courts in those states, the agreement could serve as a model for similar lawsuits in other states.
On the SmallBusiness.com/WIKI | How to determine if a worker is an independent contractor or an employee
Also on SmallBusiness.com | “Are Uber Drivers Employees of Uber?” and Why The Answer is Important
While most of the coverage of the Uber settlement is focused on the financial agreement with drivers and specific actions that the company will take to make it clear to riders that drivers are not employees, the key victory for Uber—and other on-demand economy startups—is that drivers will remain classified as independent contractors, not employees.
The IRS has long used (long, long before the app-enabled on-demand economy existed) the nebulous gray-areas of defining employees vs. contractors issue in tax-related negotiations.
As Steve King of Emergent Research (and a contributor to SmallBusiness.com) has pointed out, Uber and other on-demand economy companies all have business models built on the use of independent contractors as service providers. “Most of these companies are trying to attract independent contractors from roughly the same pool—people looking for flexible, independent work in the service sector,” says King. “A lot of these types of workers are only interested in part time work.”