Uber drives entitled to workers’ compensation?

Modern-day taxi services are raising questions about on-the-job accidents and workers’ compensation insurance.

Business Insurance published an interesting article regarding two federal lawsuits filed in U.S. District Court against ride-sharing services Uber Technologies Inc. and Lyft Inc. It has been alleged that these companies improperly shifted costs onto drivers by classifying them as independent contractors instead of employees. If these cases are successful, Uber and Lyft might be forced to provide workers’ compensation insurance for their California drivers.

We find this article fascinating because it shows how emerging technology is providing new challenges to the traditional workers’ compensation model. Internet based taxi services are booming around the country. A person uses a mobile app on a smartphone to request a ride. Drivers are people who sign-up through a company website. Payment and transaction fees are handled by the company.

Disputes about whether drivers are employees or independent contractors is not new. This distinction has serious tax and legal consequences for the entities and people involved. According to Business Insurance, Uber has claimed it’s not an employer but just a software platform. It will be fascinating to see how this litigation plays out. Here is our 2 cents on the issue under Michigan law.

Employee misclassification

Michigan employers are required to purchase workers’ compensation insurance. This is to protect both employers and employees should a work accident occur. In exchange for paying limited wage loss and medical benefits, employers get protection from civil lawsuits.

One of the biggest problems in the workers’ compensation system is employee misclassification. This is done by employers who want to save money on insurance premiums. It shifts the burden to other payers who must pick up the tab when an accident occurs. This ends up costing everyone in the long run.

Some employers intentionally pay wages as non-employee compensation (Form 1099) in order to avoid workers’ compensation. Others require employees to incorporate their own business as a legal fiction. We typically see this occur with truck drivers.

Michigan law

Michigan courts have been conflicted as to whom is excluded from coverage under the Act. Confusion arises from the language in MCL 418.161(1)(n). This section says an employee is every person performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury, if the person in relation to this service (1) does not maintain a separate business, (2) does not hold himself or herself out to and render service to the public, and (3) is not an employer subject to this act.

The Michigan Supreme Court in Auto-Owners Insurance Company vs. All Star Law Specialists Plus Inc. found that failing to satisfy any 1 of these 3 criteria excludes an individual from collecting workers’ compensation benefits as an employee. It also said in Loos v J.B. Installed Sales, Inc. that income tax records are directly relevant to the question of employee status.

Amendments to the Act in 2011 further changed who is considered an employee. On and after January 1, 2013, services are employment if the services are performed by an individual whom the Michigan Administrative Hearing System determines to be in an employer-employee relationship using the 20-factor test in IRS revenue ruling 87-41.

This seems to return Michigan to the days of the old economic reality test. It appears that employer control over an individual will now be a major factor in the determination of employment status.

Michigan Workers Comp Lawyers never charges a fee to evaluate a potential case. Our law firm has represented injured and disabled workers exclusively for more than 35 years. Call (855) 221-2667 for a free consultation today.

Related information:

Hidden costs of truck accidents

Photo courtesy of Creative Commons, by exfordy.

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