For years, state governments have claimed they were losing hundreds of millions of dollars in unpaid withholdings as a result of independent contractor misclassification. Now, one state is making a grab for a massive piece of that pie — all at once.
On November 12, the state of New Jersey sent a bill to Uber Technologies for $459 million and a bill to its subsidiary Rasier LLC for $642 million seeking unpaid contributions, penalties, and interest. The bills cover 2014 through 2018 and allege a failure to make required payments under the New Jersey Unemployment and Temporary Disability Insurance Laws.
Contributions, of course, are due only for employees, not independent contractors. And there’s the rub. Like many states, New Jersey uses an ABC Test to determine whether a worker is an employee or an independent contractor for unemployment insurance purposes, and the state is claiming that Uber and Rasier misclassified drivers.
Uber and Rasier will appeal, and there are defenses available. They have good arguments, and they will assert them vigorously. But the stakes are high, and the outcome is uncertain. When a state brings a claim like this one, a company’s arbitration agreements and class action waivers don’t help. These are not arbitrable claims.
The takeaway for businesses that use independent contractors is that they need to be aware of the risks presented by state agencies. States can initiate audits or investigations, even without a worker complaint; and when they conclude that one contractor was misclassified, they tend to extrapolate and find that all similarly situated contractors were also misclassified. The numbers get really big, really fast.
Trying to persuade a state agency to drop an investigation can be difficult too — and this, dear reader, is where I reward those of you who have kept reading, and I offer you the following story, which is 100% true.
In 2014, I was representing the estate of Robert R., who needed home health care before he passed away. His family had treated the aides as independent contractors, but the state disagreed and sent him assessments for failing to pay unemployment contributions for his aides, which the state said were employees. The facts were mixed, and there were arguments in favor of contractor status, but the estate was trying to settle out, and we were willing to pay for the months when the aides provided services.
The problem was that the state kept sending assessments for the months after poor Robert R. had died. I had never met Robert R. in person, but I felt pretty confident that after the funeral, no one was helping him dress or bathe.
To show the state that he had died, I sent the state a letter and a copy of his death certificate. But the state then sent another bill, charging assessments covering the following quarter.
Thinking that maybe my letter had gotten lost, I waited a few months, then sent the state another letter and another copy of his death certificate. But the state sent another bill, charging him assessments for the next quarter too.
I couldn’t get the state’s attention.
So then I decided to get creative, and I wrote this letter.
Todd Lebowitz is a practice team leader for BakerHostetler’s Contingent Workforce Practice Team. The team is co-led by Mark Zisholtz.