Uber (NYSE: UBER) has been ordered by the State of New Jersey to pay $649 million in unpaid taxes. The order comes after the state alleged that the company had misclassified its drivers as contractors rather than employees.
The New Jersey Department of Labor and Workforce Development conducted an audit of Uber and subsidiary Raiser, discovering the ride-sharing service had not paid an estimated $530 million in taxes from 2014 to 2018. The company was ordered by the department to pay the $530 million as well as fines and interest totaling $119 million.
Uber has sought to contest the decision, with a spokeswoman for the company stating "We are challenging this preliminary but incorrect determination, because drivers are independent contractors in New Jersey and elsewhere."
Advocates for ride-share workers are hailing the decision as a victory for gig economy workers that have long struggled to make a living due to their classification as contractors. Classification as a contractor makes it difficult for workers to file for unemployment and disability insurance and excludes them from the minimum wage and overtime pay.
New Jersey's decision is far from the first move to curb gig economy jobs, which capitalize on cheap labor through classifying workers as independent contractors. Many cities and states have been fighting to improve conditions for gig workers and contractors; just this year, California state legislatures approved Assembly Bill 5, which seeks to ensure employee status for some 1 million contractors in the State of California. If anything, New Jersey's decision may further the momentum to make it more difficult for companies such as Uber to classify workers as contractors.
New Jersey's decision is also hailed as a financially beneficial move for the state. Where employers are required to pay for disability and unemployment insurance from employees, any claims filed by contractors are paid for using state funds. An across-the-board reclassification could take a significant burden off of New Jersey financially by forcing Uber and its contemporaries to foot the bill for any filings that its workers may file.
While workers and advocates are celebrating, the decision has cast a dark cloud over Uber, which is reeling from the effects the move has had on the company's already dismal financial performance. The news of the decision exacerbated the slow downward spiral plaguing Uber's stock price since its IPO earlier this year. The reclassification of workers has been expected by Uber's investors but was expected to be far later than it had occurred. Overall, if the trend of reclassifying workers continues, companies like Uber that previously relied on cheap contract labor will be forced to provide benefits for their workers, significantly increasing operating costs, which could be potentially devastating for a company that has struggled to become profitable.