For emerging tech companies like Uber or Lyft and established behemoths like Amazon alike, maintaining their classification of a subset of their workers as independent contractors is crucial. Such classification allows these corporations to keep their costs down and limit their liabilities. For the former, in fact, their business model virtually depends on this arrangement.

But a new lawsuit filed this week threatens the employment relationships that these corporations maintain. The suit, filed in Los Angeles County, was filed by couriers working for Amazon.com seeking back wages, compensation for expenses, and workers’ compensation insurance. While Amazon contends that these workers are independent contractors and prefer this arrangement for the flexibility it allows, the workers instead contend that they are employees and should be entitled to the normal benefits that should legally follow.

This lawsuit is similar to one filed against Uber which was granted class action status earlier this year. In this suit, Uber drivers allege that they too are employees and not independent contractors. Uber has argued that the flexibility of the independent contractor lifestyle is the foundation of their business model, and thus must be maintained.

Some forward thinking startups have already reclassified their workers as employees, even though this can drive up the cost of labor substantially.  Shyp Inc., for example, made this switch earlier this year. Like Amazon, Shyp maintains a courier service that delivers packages to its customers on an on-demand basis. Shyp’s switch was not precipitated by any pending litigation against them, but rather was made in light of the difficulties some of their competitors are facing in the courtroom.

The Amazon lawsuit and others like it threaten to totally change the way emerging tech companies structure their businesses, while impacting employment law as well. While companies can jump the gun by classifying their workers as employees and thereby assume the costs that come with it, throwing in the towel is not a likely option. For one, established startups like Uber, Lyft, and Amazon have the cash reserves and political clout to fight such reclassification.  Further, these companies are aware of how important the independent contractor structure and culture is to their firm. Many drivers are drawn to Uber and Lyft, just as couriers are drawn to Amazon, because of the ease with which they can organize their hours and control their work experience under the independent contractor model. A shift away from this designation therefore could drive labor away and threaten to impede the incredible growth such companies have enjoyed in the past few years. Therefore, the outcome of the Amazon litigation bears watching.  We would not want to option of having a package delivered on demand – or grabbing a quick, cheap ride home – to disappear overnight.

Ben Jacobs

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