It’s an issue that has been rumbling on ever since the first Uber hit the streets back in 2011: Are the men and women that operate vehicles on Uber’s platforms “employees of the company,” or are they, as an Uber executive once described them, “independent, third-party transportation providers”?

Uber has always considered them as self-employed, which exempts it from having to offer the kind of labor protections and benefits enjoyed by regular company employees, saving it a huge amount of money in the process.

The argument over how to classify its millions of drivers globally has just landed the company with a whopping $649 million fine in a decision that could have serious repercussions for Uber’s business and the wider gig economy.

New Jersey’s Department of Labor and Workforce Development (DLWD), which announced the fine on Thursday, November 14, accuses Uber of misclassifying its drivers as independent contractors rather than as employees, and as a result says Uber owes $530 million for four years’ worth of unpaid employment taxes, the NY Times reported.

The figure finished up at $649 million after officials added $119 million in interest.

The Times described the decision as “a major escalation” in how states consider the various employment practices deployed by app-based firms, noting that this is the first time for a local government to demand back payroll taxes from the ridesharing giant.

New Jersey’s DLWD said it decided to turn its attention to employee misclassification as it “stifles our workforce and inflicts a huge financial toll on our economy.”

Uber will challenge

Predictably, Uber isn’t happy about the demand for payment. “We are challenging this preliminary but incorrect determination because drivers are independent contractors in New Jersey and elsewhere,” an Uber spokesperson said in a statement delivered to media outlets.

News of the fine comes as California considers a bill that would give Uber drivers and other gig-economy workers labor protections and benefits such as a guaranteed minimum hourly wage, overtime pay, health care subsidies, and paid parental leave, and also the freedom to unionize — in other words, the kind of assistance enjoyed by regular company employees.

“We expect we will continue to respond to claims of misclassification in arbitration and in court as necessary, just as we do now,” Tony West, Uber’s chief legal officer, said in relation to the California case, adding, “But we will also continue to advocate for the independence and choice that drivers tell us again and again in surveys, polls, focus groups, and personal conversations that they value most.”

Uber has warned that if its drivers are classified as employees, they would lose some of the freedom and flexibility that comes with being their own boss.

Nevertheless, a growing number of states besides New Jersey and California — as well as cities overseas — are continuing with efforts to get Uber to classify their workers as employees and offer the appropriate benefits and protections. It’s a cost the company doesn’t want to bear, ensuring the issue won’t be going away anytime soon.

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