Gig workers in Wisconsin

On March 26th of this year, the Wisconsin Supreme Court decided that further review in Amazon Logistics v. LIRC, 2024 WI 15, was premature. As a result, the court of appeals decision in Amazon Logistics v. LIRC, 2023 WI App 26, 407 Wis.2d 807, 992 N.W.2d 168, remained in place.

Before getting to that appeals court decision and what it means, the terrain for gig workers (also called self-employed workers or independent contractors) has been in a topsy-turvy legal world. Gig workers, after all, typically include drivers for Uber, Lyft, Door Dash, and Amazon, all of whom became suddenly very important during the Covid-19 pandemic. And so, some review of what has been happening the past few years in the law both in Wisconsin and elsewhere is needed.

The significance of this issue is that companies that mis-classify their employees as gig-workers avoid paying essential workplace taxes like unemployment or even minimum wages for their workers. This failure to abide by basic workplace requirements has become a major workplace problem, a problem often called mis-classification.

Employers in an increasing number of industries misclassify their employees as independent contractors, denying them the protection of workplace laws, robbing unemployment insurance and workers’ compensation funds of billions of much-needed dollars, and reducing federal, state and local tax withholding and revenues, while saving as much as 30 percent of payroll and related taxes otherwise paid for “employees.”

Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries (26 Oct. 2020). See also the excellent amicus brief Legal Action of Wisconsin filed before the Wisconsin Supreme Court in the Amazon Logistics case (detailing the economic and consumer problems unemployment insurance addresses).

The “flexibility” companies like Uber and Lyft tout for their gig-economy workers are, in fact, crafted algorithms, social designs, and behavioral tricks to shape, manage, and oversee their workers’ schedules, availability, and activities. See Noam Scheiber, How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons (2 Apr. 2017) (describing Uber’s use of “psychological inducements and other techniques unearthed by social science to influence when, where and how long drivers work”), Sarah Mason, High Score, Low Pay: Why the Gig Economy Loves Gamification (20 Nov. 2018) (detailing the “gamification” techniques and algorithms used by Uber and Lyft to manage their drivers), Alex Rosenblat, When Your Boss is an Algorithm (12 Oct. 2018) (describing Uber’s use of algorithms to manage its workforce), and Rebecca Smith, Flexibility in the On-Demand Economy (June 2016) (“In the end, a job with Uber or other on-demand companies comes with roughly the same degree of freedom as a job with a staffing agency or as a substitute teacher or day laborer: while a worker is ostensibly free to decide not to work on a particular day, she may not get a call the next time she wants to work, and she may be short on cash at the end of the month.”).

Other states

Mis-classification of gig workers has been a major issue in numerous states. Here is a sampling of what has been happening in those other states.

In California, the birthplace of the gig-economy via transportation network companies, the issue has bounced between legislation, courts, and ballot initiatives. Legislation to classify these drivers as employees, AB5, was passed and affirmed after a court challenge. People v. Uber Techs., Inc., 56 Cal.App.5th 266, 270 Cal.Rptr.3d 290 (Cal. App. 2020). A California ballot initiative sponsored by gig-economy companies called Prop 22, however, partially repealed AB5 for Uber and Lyft drivers, until a court ruled that Prop 22 violated California state constitution requirements. Castellanos v. California and Protect App-based Drivers, Alameda County Superior Ct. Case No. RG21088725 (slip op., 20 Aug. 2021). That decision has since been appealed, see Castellanos v. State of California, 89 Cal.App.5th 131, 305 Cal.Rptr.3d 717 (2023), and an additional decision from the California Supreme Court is expected this year.

Note: The economic advantage of “gig-workers” to gig companies cannot be overstated. Drivers’ median net take-home earnings–in California(!)–are just $6.20 per hour under Prop 22. Drivers who pay for health insurance out of pocket earn nearly half of that.

In Pennsylvania, Lowman v. Unemployment Comp. Bd. of Review, 235 A.3d 278 (Pa. 2020), held that that was NO driver control or independence for Uber drivers.

Uber describes itself as “a technology company” with a “mobile app based marketplace that matches up transportation providers with individuals looking for rides,” N.T. (Referee Hearing), 10/29/2015, at 6. Translated into practice, Uber creates an inventory of passengers and it utilizes drivers, like Lowman, to service that inventory on demand.

* * *

[But, a]lthough the Driver App allows a driver to provide rides for remuneration, Uber generated the passenger leads, unilaterally determined the passenger fares and the driver’s percentage, collected the fares, retained its service fee, and then paid Lowman. Agreement, ¶¶ 4.1-4.8.

Uber exercised total control over the provision of service because Lowman personally had to fulfill the passenger assignment. He could not hire a substitute driver to provide a ride to a passenger identified by Uber. Agreement, ¶ 5.2.

In the virtual world in which Uber operates, it monitored and supervised Lowman’s provision of driving services.

Lowman, 235 A.3d at 304-5. As to drivers being independent of Uber:

When Lowman is providing a ride to a passenger, he must display the Uber decal. The fact that this is mandated by statute and not by Uber is inconsequential. It is evidence of the more fundamental fact that Lowman cannot provide driving services independent of Uber since Pennsylvania law prohibits individuals from providing commercial driving services in personal unlicensed vehicles. 53 P.S. § 5714(f). Further, Lowman could not build his own client base under the auspices of his Uber relationship because his contract limits his communications with customers to the Uber App and are permitted only for the purpose of providing rides through Uber. Agreement, ¶ 2.2. Even with the Driver App activated, whether or not Lowman would have the opportunity to provide a ride service was determined by Uber which, by way of its algorithm, determines which available driver will be offered an assignment. Id. An Uber customer could not seek out Lowman’s services. Thus, Lowman’s ability to develop a separate relationship with clients was not existent. This arrangement is in stark contrast to the luxury limousine drivers in Danielle Viktor who had their own customers, advertised their services and arranged the trips they provided.

Lowman had no ability to set his compensation for providing a ride service. Although under the Agreement, he could negotiate a lower fare than set by Uber, Uber remained entitled to its fee that was set at the higher rate. Agreement, ¶ 4.1. Since the transfer of funds was between the customer and Uber, it is also unclear from the Agreement how the lower rate would be effectuated since the “payment processing functionality” controlled by Uber still must be used. Id. Lowman could not negotiate a higher rate with a passenger. Lowman’s inability to set or negotiate his remuneration weighs against a finding of an independently established business.

Lowman, 235 A.3d at 306 (emphasis in original). As to drivers having the ability to determine their own hours of work, the court in Lowman concluded:

the fact that Uber allows all of its licensed drivers to work at their own discretion evidences a decision that there are a sufficient number of individuals with access to the Driver App to ensure that, despite erratic schedules, there will always be a driver available to service passengers requesting Uber’s service. The fact that Uber’s business model does not require regularly scheduled work hours from its workforce does not translate into an automatic independent contractor relationship.

Lowman, 235 A.3d at 307.

For New York, Uber Techs., Inc. v. Comm’r of Labor (In re Lowry), 189 A.D.3d 1863, 138 N.Y.S.3d 238 (N.Y. App. Div. 2020) likewise held that Uber exercised control and discretion over the services of their drivers.

Uber controls the drivers’ access to their customers, calculates and collects the fares and sets the drivers’ rate of compensation. Drivers may choose the route to take in transporting customers, but Uber provides a navigation system, tracks the drivers’ location on the app throughout the trip and reserves the right to adjust the fare if the drivers take an inefficient route. Uber also controls the vehicle used, precludes certain driver behavior and uses its rating system to encourage and promote drivers to conduct themselves in a way that maintains “a positive environment” and “a fun atmosphere in the car.”

In re Lowry, 138 N.Y.S.3d at 241-2.

Florida charted a different path. In Raiser LLC (Uber) v. Dep’t of Econ. Opportunity (Ewers, McGillis, and Hutton) (3 Dec. 2015), aff’d McGillis v. Dep’t of Econ. Opportunity, 210 So.3d 220 (Fla. App. 2017), Florida found that Uber drivers were NOT employees, using an analysis similar to what the Commission in Wisconsin employed in Ebenhoe, discussed below.

Lyft and Uber drivers and app-based workers in Wisconsin

In Ebenhoe v. Lyft Inc., UI Dec. Hearing No. 16002409MD (LIRC Jan. 20, 2017), the Commission held that the requirements for being a driver for a transportation-network company set forth in Wis. Stat. § 440.41 meant that the drivers for companies like Lyft and Uber were not employees for the purposes of unemployment law and that they were independent contractors pursuant to Wis. Stat. § 108.02(12)(bm).

the statutes specifically provide that a transportation network company such as Lyft does not control, direct, or manage the work of a participating driver such as Ebenhoe, but instead provides a technology platform through which a participating driver pays a fee to be connected to a passenger. Given this expression of legislative intent, the commission finds that Ebenhoe does not perform services for Lyft within the meaning of Wis. Stat. § 108.02(12)(a).

Ebenhoe. The reasoning of this decision is less than stellar, however, as the Commission’s reference to the then newly passed network transportation law in Wis. Stat. §§ 440.40 et seq. was not accompanied with much legal reasoning about how this law specifically applied to the basic definition of employee in Wisconsin unemployment law and the six-of-nine conditions test for an independent contractor in Wisconsin unemployment law (these conditions are discussed below).

Note: this lack of analysis is likely because this transportation network legislation did not actually address Wisconsin unemployment law but reflected little more than a copy-and-paste of California-based legislation. The concept of transportation network companies was a classification created by Uber and Lyft in 2013 in California to excerpt themselves from traditional labor and employment laws in that state. Anthony Ha, California Regulator Passes First Ridesharing Rules, A Big Win for Lyft, SideCar, and Uber (19 Sept. 2013) and Veena Dubal, A Brief History of the Gig (4 May 2020); see also Maya Pinto & Rebecca Smith, Rights at Risk: Gig Companies’ Campaign to Upend Employment as We Know It (25 Mar. 2019).

In Wisconsin unemployment law, unemployment coverage is primarily determined by whether a person is an employee or not pursuant to Wis. Stat. § 108.02(12)(a). See also Wis. Stat. § 108.02(12)(e) (the definition of employee determines the tax liabilities of employing units and the benefit eligibility of claimants). Under this statute, an employee is defined as “any individual who is or has been performing services for pay for an employing unit, whether or not the individual is paid directly by the employing unit.” Wis. Stat. § 108.02(12)(a) (emphasis supplied). So, individuals providing driving services who are paid via a smart app by their passengers still qualify as employees under this definition. The only question under Wisconsin unemployment law is whether these employees qualify as independent contractors for unemployment purposes.

This focus on employee status, furthermore, is why wages received by true independent contractors are NOT offset against a claimant’s weekly benefit rate (while sales commissions in excluded employment, for example, are offset). See Treatment of Wages and Other Types of Income in the Base Period and the Benefit Year from the Employers’ Handbook. Wisconsin may be the only state that does NOT offset independent contractor earnings against weekly unemployment benefits.

Despite the problems with Ebenhoe, it was the relevant law when an appeals court in Wisconsin took up the case of tutors who worked through a smart app. In an unpublished decision (and so not precedent) called Varsity Tutors LLC v. LIRC, 389 Wis.2d 377, 936 N.W.2d 418 (App. Ct. 2019), the appeals court found that app-based tutors had complete independence and control over the tutoring they did via the app. Moreover, these tutors were not providing any essential services for the Varsity Tutors company itself, as the company was only a digital platform or marketplace.

Varsity generates revenue by facilitating business relationships between students and tutors. However, that does not transform Varsity’s business into a tutoring business. As stated, Varsity’s business provides a digital platform to connect students who want to be tutored with qualified tutors who want to teach them.

Varsity Tutors at ¶32. The app-based economy in this decision is paramount, regardless of why the app exists in the first place (to provide tutoring services) or the mechanics of how the app-based business actually functions.

Note: An actual marketplace, like Craiglist or, e.g., the classified ads, does not dictate terms about how sellers and buyers connect and purchase. This basic characteristic about “marketplaces” is ignored by the appeals court in Varsity Tutors. Even a stock exchange does not set the price for the equities that are being traded, whereas these app-based businesses control nearly every facet of the services/product at issue. See The gig is up on 21st-century exploitation (29 April 2021), and If Uber Wants It, It’s Bad.

On March 17, 2022, the Commission re-visited the status of Lyft drivers and ruled that they were employees under Wis. Stat. § 108.02(12)(a) for purposes of unemployment law and that the provisions of Wis. Stat. § 440.41 concerning network transportation companies were not applicable. See Wilson v. Lyft Inc., UI Dec. Hearing No. 21011105MD (LIRC Mar. 17, 2022).

Note: The Commission remanded this case for further hearings to determine whether the driver was an independent contractor or not under Wis. Stat. § 108.02(12)(bm), but Lyft dropped its appeal.

In subsequent decisions, the Commission has found various network transportation drivers to be employees and not independent contractors. See Vanderloop v. Lyft Inc., UI Hearing No. 21016680MD (LIRC Sept. 23, 2022), Lindsey v. Lyft Inc., UI Hearing No. 21011523MD (LIRC Sept. 23, 2022), Urbina v. Roadie Inc., UI Hearing No. 21013172MD (LIRC July 8, 2022) (app-based delivery driver was employee of delivery company), Turcotte v. Roadie Inc., UI Hearing No. 21011171MD (LIRC June 30, 2022) (same). As such, Ebenhoe, which held that gig-worker drivers were independent contractors, has been reversed.

These Commission decisions, however, only addressed benefit eligibility for the drivers of these companies. They did NOT address at all any liability for unemployment taxes by these companies. Amazon Logistics addresses that issue.

Note: In Wisconsin, benefit eligibility decisions for claimants are handled separately from unemployment tax liability decisions for employers. This separate decision-making for these issues does NOT occur in most states. As to the strategic issues that this separation between benefit eligibility and tax liability entails, see this sample brief (determinations of employee status involve multiple proceedings where the interests of claimants and employers can shift to a significant extent, but claimants and employers rarely consider these strategic matters during the course of these multiple proceedings). In Amazon Logistics, the employer ignored this essential issue. But, as detailed below, the appeals court failed to hold the company accountable for this basic mistake.

Amazon Logistics

Amazon Logistics is the first public and published Wisconsin case in which unemployment tax liability for gig-economy employers was at issue. In this case, the delivery-coordinating company for purchasers of products from Amazon.com contended that the delivery drivers who drove their own cars and worked through a smartphone-based app were independent contractors rather than employees. As a result, the company claimed, it did not have to pay unemployment taxes for these drivers.

Note: Employers in Wisconsin only pay unemployment taxes on the first $14,000 in wages paid to their employees in a calendar year. Given the current tax schedule, most employers in Wisconsin pay little. Data from a 2019 financial report indicated that 95% of Wisconsin employers had a positive reserve balance, that based on changes in experience rating, 35% of the employers experienced a reduction in unemployment taxes of $103 on average per employee (while 34% of employers saw a tax increase per employee of $56.70 on average), and that all industrial sectors, other than utilities, experienced a decline in unemployment taxes from 2018 to 2019. Dividing the total unemployment tax revenue of $530,300,000 in 2019 by the number of employers in 2019 (140,395 employers), the average unemployment tax being paid per employer that year was $3,777.20. As covered employment (the number of employees in Wisconsin) in 2019 was 2,854,373, dividing the total taxes paid that year with this number of employees means that the unemployment taxes paid per employee in 2019 on average was $185.78. In other words, unemployment taxes in Wisconsin cost employers generally less than $200 per employee per year.

A person’s status as an independent contractor or a statutory employee is determined by statute and not by the terms of a private agreement. Roberts v. Industrial Commission, 2 Wis.2d 399, 86 N.W.2d 406 (1957), see also Knops v. Integrity Project Management, UI Hearing No. 06400323AP (12 May 2006), Wis. Stat. § 108.02(12)(bm) (conditions to establish status as independent contractor must be met “by contract and in fact”), and Wis. Stat. § 108.12 (“[n]o agreement by an employee to waive the employee’s right to benefits or any other rights under this chapter shall be valid.”). In other words, employers cannot determine on their own whether a person is an independent contractor or not.

Note: The current independent contractor test in Wisconsin unemployment law arose from an extensive report in 2009 from the Department’s Unemployment Insurance Advisory Council.

The test to determine whether a person is an independent contractor or not for purposes of Wisconsin unemployment law has two parts. First, there must be a determination that the person performs services free from control or direction by the company in question. For Wisconsin, there are several factors that can be used to determine whether there is control or direction, including:

• Whether the individual is required to comply with instructions concerning how to perform the services.
• Whether the individual receives training from the employing unit with respect to the services performed.
• Whether the individual is required personally to perform the services.
• Whether the services of the individual are required to be performed at times or in a particular order or sequence established by the employing unit.
• Whether the individual is required to make oral or written reports to the employing unit on a regular basis.

In Amazon Logistics, it was accepted that the company did NOT exercise any control or direction over its drivers (but cf. the Pennsylvania decision in Lowman discussed above), so that first part of the test was met.

But, in Wisconsin a lack of control or direction does NOT resolve the issue of independent contractor status. A second test must still be met–whether six-of-nine conditions have been demonstrated by the putative employer for the employees in question.

• (a) The individual advertises or otherwise affirmatively holds himself or herself out as being in business.
• (b) (1) The individual maintains his or her own office or performs most of the services in a facility or location chosen by the individual, and (2) uses his or her own equipment or materials in performing the services.
• (c) The individual operates under multiple contracts with one or more employing units to perform specific services.
• (d) The individual incurs the main expenses related to the services that he or she performs under contract.
• (e) The individual is obligated to redo unsatisfactory work for no additional compensation or is subject to a monetary penalty for unsatisfactory work.
• (f) The services performed by the individual do not directly relate to the activities conducted by the employing unit retaining the services.
• (g) The individual may realize a profit OR suffer a loss under contracts to perform such services.
• (h) The individual has recurring business liabilities or obligations.
• (i) The individual is not economically dependent on a particular employing unit with respect to the services being performed.

Any six conditions will satisfy this test, but as noted in the sample brief, numerous conditions can only be met through evidence presented by the individual in question (conditions a, b, c, d, and probably h and i as well). Or, at least that was the law.

When the Commission first ruled in 2020 in Amazon Logistics, it found that only one condition–(d)–was met. The appeals court, on the other hand, found that five conditions–(b), (d), (e), (g), and (h)–were met (and so was just one short of the required six), meaning that the drivers were not independent contractors.

In reaching this decision, the appeals court altered prior Commission case law as to condition (b), where the individuals perform most of their services and whether they use their own equipment or the equipment of their putative employer, condition (e), the requirement that individuals redo unsatisfactory without compensation or face penalties for that unsatisfactory work, condition (g), whether the individuals can realize a profit or suffer a loss under contracts to perform their services, and condition (h), whether individuals have recurring business liabilities or obligations. 2023 WI App at ¶¶40-67, ¶¶80-94, ¶¶102-119, and ¶¶120-135, respectively.

Previously, condition (b) was closely tied to “business-oriented” purposes for any location or equipment. In Amazon Logistics, the appeals court held that both parts were met by delivery drivers who mainly operated away from Amazon’s central warehouse (since they made their deliveries) and who used their own vehicles and smartphones to perform the deliveries in question, regardless of whether that equipment was also used for personal matters outside of the business-related purpose.

Note: Amazon Logistics essentially “won” this condition by requiring its drivers to supply their own personal equipment and property for the benefit of the deliveries Amazon needed to be done, and the appeals court accepted this requirement as valid for this condition.

For condition (e)–consequences for unsatisfactory work–the Commission had required that there be actual evidence of this consequence for this factor to be met. The appeals court, on the other hand, found that this condition could be established by contract alone, and that Amazon Logistics met this condition through a provision in its agreement with its drivers that they defend and indemnify the company for any damages arising from their “unsatisfactory work.”

Note: Yes, Amazon Logistics demanded in its agreement with its drivers that they defend and pay for any losses connected to any issues with their delivery work. In practice, this indemnification makes no sense, since individual drivers cannot in any way defend a multi-million dollar company. But, the appeals court seized on this theoretical indemnification in the agreement to conclude that this condition was met, ignoring the statutory requirement that these conditions be shown “by contract and in fact.” Wis. Stat. § 108.02(12)(bm). As shown in the hearing with the testimony of the one driver who did appear, the consequences for unsatisfactory work was account deactivation (i.e., termination of work), as with employees in general, and not indemnification by the drivers of the company. See Commission Amazon Logistics at 4.

Condition (g) addressed the business risk at stake for the individual. This condition examined whether, under a contract for the worker’s services, there can be a profit, as well as whether there can be a loss under that same contract. Previously, the mere possibility of a loss was not the test. As noted in Alsheski v. Codeworks, Inc., UI Hearing No. 09403672AP (26 Feb. 2010), in assessing whether a realistic possibility of loss exists, the proper evaluation was whether there was a genuine business risk if the services were completed as contracted, and “not whether, given the universe of possibilities, something could occur that could result in a loss.” Because employees usually are paid for services being performed and not for a product being produced or provided, employees generally do not have “a business risk” at stake.

This factor is essentially no longer based on actual risks, as the appeals court in Amazon Logistics held that the potential or reasonably speculative risks from possible car repairs or accidents for the delivery drivers was enough to show a possible loss and so satisfy this condition.

As to condition (h), previously the Commission required that the recurring expenses at issue had to be predominately business-related expenses and not just personal expenses that could also be used for a business-related purpose. Now, according to the appeals court, the general expenses of operating a car–i.e., car insurance and maintenance–and needing a smartphone and a monthly data plan for this work satisfied this requirement. In short, some kind of expense for the “business” that is recurring will now satisfy this requirement, even when that expense is also a basic personal expense, like a car and a smartphone.

So, Amazon Logistics held that there was unemployment tax liability for gig-economy companies. But, the decision also significantly weakened the legal tests at issue and represents a significant departure from what is happening in other states (other than in Florida) in regards to gig-economy workers.

Also, left unaddressed in the Amazon Logistics decision was the complete absence of testimony regarding the thousands of delivery drivers at issue. It has been long-standing precedent at the Commission that employers cannot without careful planning seek to have just a few employees testify on behalf of a larger cohort. MSI Services, Inc., Hearing No. S0600129AP (5 September 2008) (the testimony of certain individual workers is not properly considered to represent the testimony of a larger group of workers in the absence of stipulation by the parties, or competent evidence, that the employee witnesses are indeed representative), see also Start Renting Inc., UT Hearing No. S0800059MD (15 May 2009). Yet, in Amazon Logistics the employer presented testimony from just one driver and almost entirely relied on the employer’s managers (and just two managers at that) to present evidence about the drivers. For the Commission, such “evidence” was specious:

The petitioner argued that its witnesses had the best and most comprehensive evidence regarding the delivery partners at issue. The commission disagrees. The best and most comprehensive evidence regarding the delivery partners at issue would have come directly from the delivery partners themselves, but the petitioner did not call any delivery partners to testify and did not stipulate to having one delivery partner’s testimony be taken as “representative” of all the others. In the absence of a stipulation or ruling to that effect, it was necessary that sufficient proof be presented as to each delivery partner whose status is at issue. Results Plus Inc., UI Dec. Hearing Nos. S0400231AP and S0400282AP (LIRC Nov, 8, 2006). The testimony given by the petitioner’s witnesses does not sustain the burden of proof which was placed on the petitioner by statute. The testimony of the petitioner’s former area manager waa largely based on hearsay, speculation, and conjecture. Commission decisions must be based on factual findings supported by credible and substantial evidence. Wis. Stat. § 108.09(7)(f).

Commission Amazon Logistics at n.22. This lack of actual evidence on these issues–probably because these positions were touted as app-based and so part of the new, gig-economy–was lost in the legal decision-making.

As to the continuing consequences of gig-work, John Oliver is already on it: