New Jersey, Lyft at odds over employment status of drivers

New Jersey is battling another ride-share giant it accuses of owing millions in back taxes because it has been misclassifying its workers as independent contractors.

The state, which settled a worker misclassification claim with Uber in 2022 for $100 million, is now challenging Lyft, alleging the company owes the state about $17 million.

The fight comes as the Biden administration has moved to make it harder for companies like Uber and Lyft to classify their workers as independent contractors instead of full-time employees.

Nicole Moore, a California Lyft driver and advocate for ride-share drivers, said it’s important to see states fighting for the company’s drivers, whom she said should not be considered independent contractors. That kind of classification robs workers of certain labor protections and allows companies not to pay into certain state funds, like the one that pays out unemployment benefits.

“There is no doubt in my mind that under almost every state’s law, we’re being misclassified as independent contractors in order to give these companies the flexibility to pay us less than minimum wage. And for us, you know, we’re basically working people,” Moore said in an interview.

Lyft maintains in legal filings that New Jersey drivers are properly classified under a three-prong test that the state requires to determine if someone is an independent contractor.

But New Jersey officials claim a series of audits conducted by the state Department of Labor starting in 2018 found Lyft drivers should have been classified as employees. The $17 million represents the unemployment, temporary disability, and family leave contributions Lyft failed to pay between 2014 and 2017, the state says in its own filings. Lyft contests the state’s assessment, leading to a legal fight between the two parties in the state’s Office of Administrative Law.

A spokesperson for the state Attorney General’s Office, which is representing labor officials in court, declined to comment. Lyft attorneys and a Lyft spokesperson did not respond to requests for comment.

State officials hailed the 2022 Uber settlement as a major coup in its efforts to combat worker misclassification, though it did not prevent the company from continuing to consider its workers independent contractors. The state had initially said the ride-share giant owed more than $500 million in back taxes and other penalties for misclassifying workers, but the two sides agreed to $100 million after the state said Uber provided more information about its workers. 

Rebecca Kolins Givan, an associate professor at the Rutgers University School of Management and Labor Relations, said companies in the gig economy will “do everything they can to keep operating the way they have been.”

“We don’t have any states where Uber and Lyft are now classifying drivers as employees. They’re not willing to back down overall on the classification, and they also aren’t willing to give the workers more control over their work to make them true independent contractors,” she said.

The Biden administration, earlier this year, finalized a new labor rule that makes it harder for companies to classify their workers as independent contractors. The rule went into effect March 11 and is already facing at least four challenges alleging it is illegal. Uber in a statement said the rule “does not materially change the law under which we operate.”

New York officials last year settled with Lyft and Uber over claims the companies withheld pay from drivers. The companies agreed to pay $328 million to be paid directly to drivers, and also said they would provide sick leave and a minimum base pay of $26 an hour. But the agreement allows the companies to continue to classify their drivers as independent contractors.

In 2020, Massachusetts sued Uber and Lyft over misclassification of drivers, while California drivers mounted a class action suit in 2022 against the companies over deprivation of “economic independence.” The case in Massachusetts goes to trial in May, while California drivers dropped their case after a judge ruled that plaintiffs would be required to settle their claims individually. In 2017, Lyft settled a misclassification class action lawsuit from California drivers for $27 million.

Drivers like Moore want to see more states like New Jersey take these kinds of stances against companies like Lyft. Misclassification doesn’t just affect a company’s workers — it opens the door for big companies to skip out on the taxes they should owe, she said.

“They’re cheating the government. They’re cheating workers. They’re actually cheating customers,” she said. “That’s not how we build the economy and it’s not how we build a community.”