The National Labor Relations Board (NLRB) just ruled that Uber drivers are, indeed, contractors and not employees. This news made Uber's stock soar but there's more to this than just a stock price. This ruling can impact your business if you use contractors or can affect you if you (like me) work in the so-called "gig economy."

Uber Drivers as Contractors Is Unsurprising

Many people focus on the fact that a Trump appointed NLRB General Counsel, Peter B. Robb, was behind this decision, but the reality is, it's a tough sell to argue that Uber drivers could be employees, although that was the stance of the NLRB under the Obama Administration. The NLRB expanded their definition of contractors earlier this year as well.

There are rules surrounding whether a person is a contractor (often called a 1099 employee) or an employee (often called a W2 employee). It can't just be the decision of the employee/contractor and the company. No one can consent to give away their rights to be an employee if they meet the criteria for W2 employee. The Uber drivers don't because they, among other things:

  • Use their own equipment
  • Set their own schedules
  • Are free to work for competitors
  • Are responsible for their own profit/loss

The profit/loss thing was a key determinant for the NLRB in this decision. However, the one common definition of a contractor that Uber fails to meet is that the workers in question don't provide a core function of the business. The drivers are the core function of Uber's business, and that's where you could make a strong argument that they are, indeed, employees.

What this Means for All Gig Workers

This memorandum is targeted specifically at Uber, but that doesn't mean they are the only ones affected. It enforces the idea that gig workers are contractors, and therefore not eligible for things such as health insurance, company-paid social security taxes, and other employee perks. Additionally, it prevents them from forming a union.

This memorandum signals a change in NLRB policy that encourages more companies to use contractors.  Employment attorney Jon Hyman says of this ruling:

Gig employers have had a good couple of weeks in the federal agencies. Both the DOL [Department of Labor] and NLRB have concluded that most gig workers are independent contractors, not employees. It means they have the freedom to work as they want, when they want (which is likely what most of them want, and why most of them became gig workers in the first place). And it means that the gig employers don't have to pay them overtime, don't have to provide them benefits, and don't have to worry about them forming a union. Seems like a win/win for both sides. Unless or until the courts step in and muck this all up.

Hyman's point is well taken. The NLRB can be overruled by courts and, of course, Congress could step in and change things. The National Labor Relations Act is an old law and hasn't been updated to reflect today's new technology. Like the Fair Labor Standards Act, the law was designed around a factory-type economy, rather than a knowledge economy.

Does this Mean You Can Just Use Contractors?

While this strengthens the use of contractors rather than employees, it doesn't change existing law. You still need to be careful and check with your employment attorney before declaring someone to be a contractor. Remember, the business owner is the person who faces penalties for mislabeling someone, not the employee.

Lots of people prefer the flexibility and independence of contractors, but being responsible for your own profits/loss can also be a bit scary. Some companies want to use contractors strictly because they are cheaper than employees, but properly paid contractors shouldn't be cheaper than employees, as they should be compensated for the value they bring your company. Regardless, lowered costs aren't a valid reason to declare someone a contractor.

Keep an eye on this issue--there have been massive changes in the past few years and it hardly seems settled. There may be changes in the future.