An unfolding Wisconsin court battle might have huge tax implications for one of the world's most prominent online retailers, and it could upend the way the state handles the so-called “gig economy.”
Attorneys for Amazon and the state will face off before the Wisconsin Supreme Court over whether some of the delivery drivers in the tech behemoth’s Logistics division are considered Amazon employees or independent contractors.
The difference is not merely semantics. If the drivers are found to be employees, as the state Department of Workforce Development believes them to be, Amazon would be hit with a tax bill topping over $200,000.
If the court sides with Amazon, the determination that the drivers are independent contractors could serve as a major win for Wisconsin’s business community. Either way, the ruling will likely affect other services, such as Uber, Instacart or Door Dash, that have become ubiquitous in Wisconsin.
The case also could serve as an early test for how the Wisconsin Supreme Court’s newly minted liberal majority will approach labor issues — and have a ripple effect beyond the state’s borders.
“It fits in with a broader trend, that there's these gig economy cases where the courts are ruling against business and in favor of the employees being employees,” said Brenda Lewison, an attorney with Legal Action of Wisconsin, a nonprofit providing free legal services to clients.
“So if Amazon Logistics is able to convince the Wisconsin Supreme Court that these people are really independent contractors and not employees, then every place where this comes up again, they're going to point to Wisconsin.”
Impact beyond Amazon
In Wisconsin and across the country, whether a person is an employee or an independent contractor is not an idle matter.
In the Amazon case, the issue is whether the company should have been paying taxes that go into the state fund that pays out unemployment benefits. If a person is deemed to be an employee, that would also make them eligible to receive unemployment benefits if they lose their position.
Amazon currently operates a program called Amazon Flex, where a person can use their own smartphone and vehicle to effectively operate as a delivery driver, signing up for blocks of package deliveries and then distributing them while using a mobile application to track their progress.
Amazon Flex operates in the Milwaukee area. Between 2016 and 2018, the Department of Workforce Development (DWD) audited the status of over 1,000 delivery drivers who the company had deemed to be independent contractors.
Under state law, the process for proving whether someone is an independent contractor is messy. First, a company must prove that the worker’s services are not controlled or directed by their employer.
If that condition is met, then a nine-question test is applied, with factors including whether a person is using their own property to carry out a job, if they're fully reliant on one employer for their livelihood and if they have contracts with multiple different employers.
Six of the nine criteria must be met to classify someone is an independent contractor. In the case of Amazon, DWD and the Labor and Industry Review Commission found only one of those conditions was satisfied, ultimately ruling the company must pay over $205,000 in back taxes from 2016 to 2018.
The company appealed in court and a Waukesha County judge sided with Amazon before the matter went before the state Court of Appeals. There, the three-justice panel found that five of the nine criteria were met, narrowly deeming Amazon’s drivers to be employees.
The company argued this decision “creates profound confusion” and is asking the Wisconsin Supreme Court to correct what it views as a series of faulty assumptions by the lower court.
Amazon also argues the current law as it applies to the “gig economy” needs clarification, not just for its own benefit but for other workers and platforms that operate in Wisconsin.
“This is not a legal question unique to Amazon Logistics; it is one of substantial import for businesses and gig workers throughout the State,” Amazon’s attorneys wrote in a legal filing earlier this year.
Indeed, there is agreement on both sides that the case could have implications far beyond package delivery.
Samantha Prince, assistant professor of law at Penn State Dickinson College of Law and an expert on worker misclassification and the gig economy, said other companies will likely pay close attention to the Supreme Court ruling.
“If I was Uber, if I was Lyft corporate counsel, I would be watching Wisconsin here,” Prince said. “Because even though they maybe don’t have as many drivers as somewhere like New York or California, still it is another state.”
In a friend of the court brief filed in October, Wisconsin Manufacturers and Commerce (WMC), the state’s business lobby, argued the current framework had little certainty for anyone, particularly in the gig economy.
Platforms like Amazon, Uber or Instacart have traditionally maintained that classifying their drivers as employees would limit their workers' flexibility to set their schedules and work as they wish, while potentially undercutting the viability of their business model.
A ruling from the court that expanded the definition of employee, WMC argued, could jeopardize the viability of online tutoring platforms, online therapy appointments with programs like BetterHelp and other services.
Wisconsin Manufacturers and Commerce, like Amazon, urged the court to hew closely to the text of the state law and reject any impulse to broaden its reach.
“The importance of this case is nearly impervious to hyperbole,” Nathan Kane, an attorney for WMC, wrote in the brief. “This case will affect every sector of the state’s economy and every stratum of its society. This case could eviscerate the autonomy of millions of Wisconsin workers.”
Workers hope for Supreme Court lift
Others argue a ruling the other way is an important step to lift up the rights of workers.
Classifying a person as an employee, rather than an independent contractor, could have a number of consequences. They could be eligible for workplace discrimination protections, minimum wage requirements and a business’ benefit plans and would be able to unionize.
The Wisconsin case is strictly limited to unemployment compensation, though Lewison of Legal Action noted this was still a big deal.
“Unemployment is a mechanism by which we can lift people out of poverty, or prevent poverty,” Lewison said. “And that's really crucial, not only for our individual clients, but for our economy as a whole.”
Worker misclassification more broadly has been a topic of increased focus by state regulators. A taskforce created by Gov. Tony Evers last year to study the subject reported that lost taxes due to misclassification could run into the tens of millions of dollars.
Prince, from Penn State, noted that while the specifics of this case apply only to unemployment insurance, a favorable ruling could embolden the Department of Workforce Development to classify Amazon workers as employees for other purposes as well.
And Wisconsin isn’t alone in grappling with this issue.
In New York, Gov. Kathy Hochul announced last month that the state had come to a sweeping agreement with Uber that would have the company make payments into the state’s unemployment trust fund but which would not actually classify its drivers as workers.
Other places have gone further, with at least half a dozen states passing laws that make it easier for certain sites — notably, platforms that connect consumers with handyman services — to classify workers as independent contractors.
Ridesharing services are generally exempt from those laws. But in California, Uber, Lyft and other companies spent millions to ensure the passage in 2020 of Proposition 22, which clarified they are exempt from the provisions of an earlier law that classifies most wage earning workers in the state as employees and instead would receive other benefits.
In Wisconsin, legislators introduced a bill to clarify that rideshare and delivery drivers are generally not employees but would lay out an array of benefits available to them if they work a certain amount, including health and occupational accident insurance policies.
The proliferation of these types of bills is common, Prince said.
“One state does it and then another state says ‘Oh, yeah,’ and the dominoes just start falling over,” she said.
