A look into recent misclassification cases and the risks of worker misclassification for your business
- Last updated: November 23, 2023
“How bad can it be if we accidentally misclassify a few workers?”
You may find yourself asking this question as you prepare to expand in an African country. Surely, worker classification is not so great a priority, especially when you have so much else to take care of during your business expansion to a new continent.
At worst, your company could get fined and pay some damages…right?
You will be surprised to find that this is not remotely the case. Global legal precedents have proved that misclassification can come at a steep cost for businesses – a cost which is usually not limited to monetary terms either.
Find out just how misclassification has impacted businesses around the world – and how you can protect your business from these risks:
What is worker misclassification: independent contractors v/s employee
Worker misclassification happens when someone who is actually taking on the responsibilities of an employee is classified as an independent contractor. As such, the person is deprived of rights and privileges usually given to employees, such as: overtime payment, pension payment, employer contributions made to the government and local tax authorities.
Wondering if there’s a way to further distinguish independent contractors from employees? Find out more here.
Global shipping company: $500 million settlement (1999-2014)
Plaintiffs in a 1999 case sued a global shipping company, arguing that drivers, acting as independent contractors, were unjustly charged for costs (uniforms, gas, insurance, car upkeep, and other needs of operation).
In December 2005, the complainants were granted $5.3 million in damages and an extra $12.3 million in legal fees due to the shipping company’s authority over them and their poor working environments. Drivers who were based in California received a further $9 million in damages three years after the court’s ruling.
By the end of 2016, the global shipping company had paid nearly $500 million in misclassification settlement payments.
How the employee misclassification situation could have been avoided
What is truly regrettable for the company is that with the right advice, it would have cost them much less than half a billion dollars to properly classify their workers.
Instead, the company went through nearly two decades of lawsuits, which dragged their reputation through the mud, and cost them a truly shocking sum of money.
At Africa HR Solutions, we would have advised the shipping company on the nature of employment from the very beginning, that is from the writing and signing of contracts. Guided by local legislation and experience, we would have pointed out that independent contractors cannot legally bear costs associated with operations, among other things.
Renowned global ride-hailing services company (2016)
A global ride-hailing services company was sued by a US citizen who worker as a driver under the company’s name for employee misclassification.
In the state of California alone, there are over 150,000 drivers operating for this company. Many of them drive over 40 hours each week and have come to view this company as their main or only source of income. The driver sued the company, their subsidiary, and 10 additional representatives in July 2016. He asserted that those responsible had broken the federal Fair Labor Standards Act, common law, and other North Carolina statutes. Except for the Fair Labor Standards Act claim, the court dismissed all other claims in preliminary hearings.
For “all natural persons who have worked or who continue to work as an Uber Driver anywhere in the United States and who have opted out of arbitration,” the court awarded class certification in July 2017.
Software and hardware giant (2000)
Permatemps are long-term contract workers who may not receive the same benefits as permanent staffers even after working for an organization for many years. Technology industry associations and legal experts were closely following the employee misclassification case that a software and hardware giant was involved in. This is because it could have compelled other similar businesses to provide benefits to a portion of their contract and temporary employees, which was a significant issue in the field of information technology.
The $97 million that the company was required to pay as part of the agreement would pay for legal bills, other costs associated with the lawsuit, and remuneration for the contract staff.
After the lawsuit, the company modified its temporary employment practices. Short-term employment is now limited to 12 months, after which employees must take a 100-day break.
What misclassification entails for the employer.
If, as an employer, you are found guilty of employee misclassification, you may have to break the bank and pay for the following:
- Wage Claims
- Sanctions & Fines
- Overdue Taxes
- Coverage for Employee Benefits
Industries where worker misclassification is most common.
- “On-demand” startups
- Cleaning and janitorial services
- Home care
- Cable and internet services
- Hospitality
- Hotels/lodging
- Home products installation
- Retail and Internet sales
- Media
- Trucking and transportation
- Courier, delivery, and logistics
- Construction
- Manufacturing
- Staffing services
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