Historically, federal labor and employment laws, as well as most state labor and employment laws, have not applied to those people who are "independent contractors." Independent contractors are, in effect, considered their own small businesses, thus those who contract with them have no legal requirement to comply with laws that apply to employees. Those who contract with these "sharing" companies give up considerable rights that they would have as employees, rights both federal and state. There are many limitations for the contracted worker, showing us that how laws define whom they apply to is central to the consequences for the person who is doing the work. A contrast between the independent contractor and the employee demonstrates this well.
An independent contractor has no entitlement to worker's compensation if he or she is injured on the job. An employee, however, is entitled to have all of the expenses of the injury paid for as well as 60% of his or her wages until able to return to work.
If an independent contractor ceases to do the contract work, there is no entitlement to unemployment compensation, from either the state or for any additional weeks that Congress might approve. An employee has this entitlement.
An employer must set aside a social security contribution for each employer, but none is set aside for the independent contractor.
An employee has the right to join together with other employees to form a union and collectively bargain with an employer. Independent contractors have no such right.
Minimum wage laws, whether state or federal, apply to employees, not to independent contractors.
The Affordable Care Act requires that employees who work 30 hours or more must be provided with health insurance. Independent contractors could work double that and still not be entitled to health insurance.
So, there are substantial limitations on the protections and benefits for the independent contractor as opposed to the employee.
What is central to all of this is the question of how one defines an employee and how one defines an independent contractor. For each area of law, the definitions differ slightly, but there are enough attributes in common to provide a good overview.
An employee is someone whose place of work, time of work, and nature of work are controlled by an employer. His or her materials to work with are provided by the employer. He or she has little or no control over what is done, where it done, when it is done, or how it is done. In exchange for what is a nearly complete lack of autonomy, the employee receives the above-discussed protections of the law.
The independent contractor, on the other hand, has nearly complete autonomy. He or she is given an "assignment" that must be completed as he or she sees fit. The independent contractor does not need to report to work at 9:00 am and work until 5:00 pm with an hour for lunch and two fifteen minute breaks. An independent contractor is not told how to make something or how to provide a service. It is up to the independent contractor to determine how the job will be done. An independent contractor provides his or her own supplies and materials. The independent contractor has no boss, simply a contract that requires the completion of a particular task or project.
Companies such as Uber and Lyft are arguing that they have no employees at all, simply a collection of independent contractors who accept contracts to complete a task. These companies do not tell drivers where to work or when to work. They provide their own vehicles to do so, pay their own car insurance, and no one tells them how to take a customer from Point A to Point B or even requires them to talk nicely to their customers. (My personal experience is that they do, though. I would not want to imply that this is a rude collection of people.)
From the perspective of those who work for companies such as Uber and Lyft, the feeling is that they work hard, take all the risks, do a good job, and should be entitled to the legal protections afforded to employees. There is a general fear that more and more companies will turn to arrangements like these, and that if they are permitted to do so, employment as we know it will be no more.
If the independent contractors prevail in their arguments that they should be defined as employees, there are substantial gains for them to make, but they would lose what autonomy they do have. The companies, if they prevail, stand to save billions of dollars, since compliance with labor and employment law is quite costly.
This is a central issue today in labor and employment law. These companies are a new phenomenon that does not fit comfortably into the classification schemes we have now. Experts in labor and employment law will be watching closely to see how courts and legislatures deal with the arguments of each side. And certainly, employees and independent contractors will be paying attention, too.
As the very informative answers above discuss, much of United States labor law is based on an earlier economic configuration, in which the majority of workers were employees. Thus most of the protections for workers, including minimum wages, maximum working hours, safety regulations and such were developed to prevent the rather horrific abuses of employees common in the nineteenth and early twentieth centuries. Also, much of the social safety net in the United States has remained tied to this rather dated economic model, with health insurance and pensions being tied to a great degree to employment (a system most other developed nations have moved beyond).
By redefining most of their labor force as contractors and using information technology to connect those laborers to customers, companies such as Uber have become extremely profitable. However, the workers are left without any of the protections the labor laws were created to establish. For example, workers on Task Rabbit or Mechanical Turk may only earn a few dollars an hour, and may need to work 16-hours a day simply to pay for food and shelter. Because such contract workers have no benefits, essentially the taxpayers make up the difference with programs such as food stamps and medicaid; in other words, the hidden cost and much of the profitability of the sharing economy is actually grounded in taxpayer subsidy, a situation that is both unfair to the workers (who get few benefits or protections) and the taxpayers (who are, in effect, subsidizing the few billionaires who profit from exploiting badly paid contract laborers).
Workers for companies such as Uber and Lyft are considered independent contractors in our economy. Businesses that employ independent contractors usually do not have to pay payroll taxes, abide by wage and hour laws, provide any type of break, or reimburse for on-the-job expenses. Many independent contractors have faced many legal challenges and believe they should be classified as an employee and not an independent contractor. Employees are protected by state and federal laws, while independent contractors lack this protection, which could ultimately threaten the sharing economy. A driver for Lyft by the name of Cotter filed suit against the company for denying him minimum wage and reimbursement for gas and car repairs. The suit ended up going to a jury trial, but Lyft still emphasizes that its workers are independent and not employees. Drivers for these companies have the option to work as many hours as they wish and work for multiple different sharing applications. These contractors are not obligated to work a certain number of hours per week like most employees are required to work.