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Uber fined $649 million for misclassifying drivers

New York City, like most medium to large cities, has seen a rise in the use of independent transportation services such as Lyft and Uber. As the number of drivers in these services has risen, states have struggled with how to classify drivers for purposes of taxation, workers compensation, and other regulatory programs. As a previous installment of this blog noted, employers frequently attempt to apply self-serving classifications that do not always agree with the classifications used by the states or cities that have regulatory jurisdiction. A recent decision by New Jersey may have an enormous effect on how Uber and Lyft are taxed.

In New Jersey, as in New York, employers are required to pay taxes to the state based upon the salaries or wages paid to employees. Payments to independent contractors are exempt from this requirement. Not unexpectedly, Uber has long maintained that its drivers are not employees but are instead independent contractors. Thus, the company claims that it need not pay employment taxes. In a stunning announcement, New Jersey declared that Uber's drivers were employees and not independent contractors. The state also announced that an audit found $530 million in unpaid employment and disability taxes from 2014 to 2018. The state is also claiming an additional $119 million in interest on the delinquent taxes.

Uber said that it will challenge the state's conclusion, but the tide of regulation may be rising. New York City requires drivers for ride-hailing apps such as Uber and Lyft to receive a minimum wage. California is considering a new law that would require workers to be designated as employees, affording them basic protections such as minimum wage and unemployment insurance.

As drivers seek additional benefits and protections, the number of lawsuits challenging the employers' characterization can be expected to increase.

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