Are Uber, McDonald’s And FedEx Really Misclassifying Workers For Tax Purposes?

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Employers are under increasing scrutiny for misidentifying workers to avoid providing benefits, but some say the accusations are downright false.

In the past year, labor agencies have ramped up efforts to change the ways employees, unions and business owners interact. Labor related cases have been used to change how franchisees and contractors are classified. While officials claim the changes are to better protect workers, others argue its actually a sneaky move to just help union bosses.

“We’re seeing more creative ways to misclassify workers,” Patricia Smith, chief litigator at the Department of Labor, said at a legal conference in the spring.

The franchise model and contracting are two ways in which larger companies interact with smaller employers or self-employed individuals. Contractors are considered self-employed individuals who do contract business for a company, while franchisees are considered their own private operations that do business for a larger brand name.

According to a Tuesday article from The Wall Street Journal, court documents reveal employers have simply shifted workers from employees to independent contractors or franchisees in order to avoid taxes and labor law requirements. Norman Leon, whose firm is general counsel to the International Franchise Association, notes such assertions without adequate data is simply unproductive.

“I don’t think that’s a fair assessment at all,” Leon told The Daily Caller News Foundation. “Classifying workers as employers to avoid tax expectations or labor law is unfounded.”

Though the article points to specific examples, there is little reliable data to gauge how much abuse is actually happening and if it’s as rampant as some suggest. Despite the lack of data, government officials have gone after both business models. Recent lawsuits have challenged companies like FedEx, Uber and other companies for their use of contractors.

“More than 100 state and federal rulings have affirmed that FedEx Ground contracted service providers are properly classified as a matter of law,” a spokesman for FedEx told The Daily Caller News Foundation. “The handful of contrary decisions in the past year were based on varying state laws and a model that is no longer in use.”

Last month, a California court ruled Uber misrepresented one of its employees as a contractor to avoid paying her employee expenses and benefits. Uber, however, argued that it is merely a technological platform used by independent drivers who shouldn’t be considered employees.

Additionally recent cases involving McDonald’s, CNN, and Browning-Ferris Industries have provided federal officials the opportunity to revisit the franchise model. The proposed changes to the model would make it far less likely for small businesses within an individual franchise to be considered their own operations. Rather they will likely just be considered owned by the larger corporation with which they contract.

“Franchises exists because franchisees have skin in the game,” Leon noted. “It’s something franchisees seek.”

The changes in the franchise and contracting models will make it much easier for unions to organized workers and this, opponents argue, is the real reason behind the changes.

Though contractors can still join a union, it’s much easier to unionize employees because consent doesn’t have to be unanimous. If a union can get the majority of employees within a single bargaining unit to agree to representation, it becomes the Exclusive Representative of all the employees.

If that bargaining union happens to exist in a mandatory dues state, all the employees within a unionized bargaining until must pay union dues or fees whether they agree with the union or not. The same principal applies to franchisees which would have to be unionized individually unless they were considered part of the larger corporations they contracts with.

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