Uber Fined $649 Million for Classifying Drivers as Independent Contractors

New Jersey has demanded that Uber pay $649 million for years of unpaid employment taxes going back as far as 2015 for its drivers, arguing that the ride-hailing company has misclassified the workers as independent contractors and not as employees. It said the company owed the state $523 million in overdue taxes along with another $119 million in interest and penalties for the last four years. Uber disputes these findings.

Last week, the New Jersey Senate took up legislation that could restrict when some businesses are permitted to classify workers as independent contractors. As employees, they would be entitled to basic protections and benefits, such as overtime pay, health care and unemployment insurance.

The case represents a major escalation in how states nationwide view the employment practices at the core of many app-based companies, and the first time that a local government has sought back payroll taxes from Uber, which has hundreds of thousands of drivers in the United States.

Across the country, states and cities have moved aggressively to rein in gig-economy companies that depend on inexpensive and independent labor, potentially reshaping their business models. Such companies have so far been able to successfully beat back attempts to alter the decades-long trend of outsourcing and franchising work.

In California, a new law could require that workers be designated as employees, allowing them to gain access to basic protections like minimum wage and unemployment insurance. Pushed by labor groups, similar legislation has taken root in New York, Oregon and Washington State. In New York City, drivers for ride-hailing apps now receive a minimum wage, though they are not classified as employees.

The labor costs of companies like Uber and Lyft could rise by 20 to 30 percent if they were required by regulators or courts to treat drivers as employees, according to industry estimates.

Uber controls when and how much the drivers can work but does not pay them overtime. There are labor experts that feel that Uber has sufficient controls over the work of the drivers such that they should be deemed employees. The Company is challenging the findings.