New Jersey Slaps Lyft With $16 Million Tax Bill, Continuing Pressure On "Gig Economy" Business Model

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by Tyler Durden
Friday, Nov 06, 2020 - 01:05 PM

While Uber and Lyft may have found some respite on Election Day, with California voters allowing the two companies to continue to function as "gig" companies that don't need to take on the liabilities of employing their independent contractors, that doesn't mean the ridesharing giants won't face continued business model pressures elsewhere in the country.

Right now, one of those pressures is coming from New Jersey, where regulators are seeking $16 million from Lyft for unemployment and disability taxes that include back pay and interest. The New Jersey Department of Labor and Workforce Development is seeking similar unpaid taxes from Uber. Last year, the state told Uber it owed it $650 million after an audit.

The state's argument is that worker classification standards makes it difficult to run a business with contractors only, according to Bloomberg Law. The state's determinations against the companies could easily mutate into demands that the companies pay drivers minimum wages and overtime under state law.


That would increase operating costs between 20% and 40% for Uber and Lyft, if enforced.

Rachael Kohl, an assistant law professor at the University of Michigan, said: “There are a lot of benefits to businesses to hire independent contractors to avoid all the laws that govern workers. In New Jersey, it’s been determined they misclassified everybody and if the companies are employers, they should have been paying the tax.”

New Jersey's Labor Department reached out in a letter to Lyft on August 14 detailing the amount it says the company owes. The company responded by disagreeing and requesting a hearing on September 10. 

Lyft responded: “Drivers are correctly classified as independent contractors and overwhelmingly want to remain that way by a 4-to-1 margin. Efforts to force them to be employees would have dire economic consequences and cost thousands of jobs."

At the same time, Uber remains in the midst of fighting its audit. 

The worker classification issue was thrust into the spotlight as the pandemic started. Many drivers saw their driving opportunities dry up, while others filed for unemployment and disability. A spokesperson for the NJ Labor Department said: "When a company doesn’t make contributions to the unemployment trust fund, drivers who are deemed employees still receive benefits when they file claims."

As we noted days ago, California voters approved Proposition 22 Tuesday evening, which would exempt gig-economy companies from a state law requiring them to classify their workers as employees. The ballot measure mandates that these companies' drivers will receive new benefits, such as hourly earnings of some sort but will not receive the full suite of employment protections that comes with normal jobs. 

Uber and Lyft, along with other gig-economy companies, spent more than $200 million to fund "Yes on 22," the costliest ballot measure in state history. Uber and Lyft had threatened to leave the state if they lost.