As the use of independent contractors has increased, so have the number of lawsuits alleging that companies misclassified their workers. Why have platforms and talent marketplaces been particularly vulnerable to these suits? There are a few key reasons. In this article, we will explore why platforms have become a target of misclassification lawsuits and what steps companies should take in order to ensure compliance with relevant labor laws.
The Main Reasons Platforms are Vulnerable to Misclassification Lawsuits
As the gig economy continues to grow, so does the potential for employers to misclassify workers as independent contractors. This is a concerning trend because it can lead to legal issues and financial losses for both employees and companies. Companies that fail to properly classify their workers risk facing costly lawsuits from disgruntled employees who want back pay and other benefits they are entitled to under labor laws. Misclassification litigation has been particularly prevalent among platform businesses, such as ride-sharing services or app-based delivery firms, which have come under fire in recent years due to concerns about worker rights and wages.
The gig economy took the world by storm, leaving many confused in the wake of new work models.
First, there is often a great deal of confusion about what exactly a platform is. Is it a technology provider? A middleman? A staffing agency? The answer is often yes to all three, and this lack of clarity can lead to problems when it comes to classifying workers, and it leads to the next main reason platforms are vulnerable to misclassification lawsuits.
The definition of an “employee” versus an “independent contractor” has been blurry.
The gig economy has evolved more quickly than legal definitions could possibly keep up with. Many platforms operate in industries where the lines between worker classifications for employees and contractors were already blurred, such as ride-hailing or food delivery. While a worker may sign an independent contractor agreement or Form 1099-NEC, this alone does not automatically guarantee them the legal status of an independent contractor. Learn more about what worker classification is and why it matters by clicking here.
Examples of misclassification lawsuits involving platforms
Let’s look at some specific examples of recent misclassification lawsuits involving platforms ranging from food delivery to dog walking.
- DoorDash, Inc. pays $100 million to settle a number of class action lawsuits for misclassifying delivery drivers as independent contractors.
- Instacart agrees to pay $46.5 million in order to settle a 2019 lawsuit brought against the company by the City of San Diego.
- Uber agrees to pay $100 million in a New Jersey settlement and $8.4 million in a California settlement over driver misclassification.
- The Rover Group will pay $18 million in a worker misclassification settlement.
Misclassification Costs You More Than it Saves You
As our working environment continuously evolves, the lack of clarity surrounding worker classification is a driving factor of these misclassification lawsuits. Misclassifying employees as independent contractors leads to serious issues and unjust outcomes, a scenario where nobody wins. Therefore, with the increased prevalence of gig economy jobs across nations, it is critical that businesses properly classify workers so they can obtain their requisite rights and protections.
Accurately classifying staff and removing risk can be more beneficial for all parties involved than misclassifying them. After all, the personnel are the soul of every successful business; wouldn’t you rather fairly compensate them instead of incurring costly penalties? The thing is, accomplishing this is more simple and cost effective than you may have thought.
How Platforms Can Mitigate Risk and Avoid Misclassifying Workers
While the solution to the problem of misclassification is complex, a freelancer management system that uses AI for classification, like GreenLight, can efficiently mitigate the compliance risks and headaches that come with the classification of your extended workforce. Our AI determines the correct worker classification – and either make them an employee of GreenLight, or we contract with them as an approved contractor. Either way, you get to utilize workers the way you want without having to worry about a lawsuit.
GreenLight’s workforce management platform is built on an API-first architecture, which means it can easily integrate into your existing workflow. We’ve teamed up with leading partners to make sure our platform works flawlessly with the tools you already use. Here are a few of our partners:
- Anthem for health insurance
- E-Verify for identity verification
- Human Interest for 401K
- Berxi for professional liability insurance
- SafetyWing for travel medical insurance
With our API, you’ll be able to accomplish so much more than before and in so much less time. Plus, your workers receive the benefits they deserve. We handle payroll, onboarding, benefits, risk mitigation, and compliance so that you have more time to benefit from your world-class team. We are an EOR operating in countries across the globe and growing rapidly, so your extended workforce can work from all over the world. Schedule a call with our team of experts today.