Shutterstock.com

During this legislative session, the New Jersey State Legislature proposed Senate Bill No. 67 to establish a government mandated program for the funding of benefits to workers who provide services to consumers through large-scale contracting agents, like Uber or Lyft. The bill would acquire its funding by imposing a new surcharge on all consumers who utilize the workers’ services, equal to the lesser of 25 percent per transaction or $6 per hour. While the proposed new tax/surcharge seeks to achieve a worthwhile goal, further review and study of this measure by a legislative task force should occur before the legislation advances.

In its current form, the bill calls for “contracting agents” of at least 50 individual workers to “contribute funds to qualified benefit providers to provide benefits to workers of the contracting agents.” The bill defines a “contracting agent” as any business or entity that (i) facilitates the provision of services by workers to consumers seeking such services, and (ii) makes payments to workers using IRS Form 1099 for independent contractors. The bill requires contracting agents to contribute the lesser of 25 percent of the total fee collected from the consumer for each transaction of services provided, or six dollars for every hour that the worker provided services to the consumer.

The bill was originally introduced in the New Jersey Senate on Jan. 9, 2018 and referred to the Senate Labor Committee. An identical bill was proposed in the New Jersey Assembly, as Assembly Bill No. 3824, on April 12, 2018, and referred to the Assembly Labor Committee. While the bill has not moved from the Assembly Labor Committee, the Senate Labor Committee did refer the bill, with amendments, to the Senate Budget and Appropriations Committee on Oct. 1, 2018. In light of this development, closer examination of the bill is warranted. Indeed, the bill raises several significant concerns.

First, while clearly designed to address the rideshare business, the bill does not limit its application to rideshare companies. Rather, the bill carves out a narrow class of workers (i.e., workers engaged in the sale of financial products or services, services from persons licensed by the New Jersey Real Estate Commission, services from persons who contract to solicit orders in New Jersey as the sales representative of a principal, or services from any person subject to a collective bargaining agreement), but subjects all other “contracting agents” of at least 50 individual workers to its requirements. Thus, the bill could have an impact in the state well beyond the rideshare industry.

Second, the bill’s proposed surcharge could materially increase the costs of using rideshare services in New Jersey. Not only is such a surcharge bad for consumers, but it could also prove detrimental to rideshare drivers if the surcharge discourages customers from utilizing rideshare services.

Third, as written, the bill could create confusion as to the appropriate surcharge amount. It is unclear, for example, how a rideshare service would calculate the $6 per hour, pro-rated surcharge as an alternative to the 25 percent transactional surcharge. Further, rideshare companies, like Uber and Lyft, operate on a business model that lets consumers prospectively know the cost of the ride that they purchase. In its current form, however, the bill would require these companies to determine after the ride concludes whether to apply a 25 percent surcharge or $6 per hour pro-rated surcharge, thereby necessitating a change to how they do business and engage consumers in this state.

Fourth, the bill directs nonprofit “Qualified Benefit Providers” to provide benefits to workers, including workers compensation insurance, without mandating that such providers qualify as licensed insurers. Consequently, the legislation could sanction the creation of nonprofit insurance companies that operate outside the regulatory oversight of the Department of Banking and Insurance (DOBI) or the capital, reserving, rating and solvency requirements applicable to insurance companies. The bill also does not provide a back-stop to mitigate against such concerns, such as a guaranty fund. In view of these and similar concerns, the legislature should consider seeking input from DOBI and the New Jersey Compensation Rating and Inspection Bureau (CRIB), the latter of which establishes and maintains rules, regulations and premium rates for workers compensation and employers liability insurance.

Finally, the bill appears to overlook existing benefits that are currently available for rideshare drivers in New Jersey. For example, Uber drivers may enroll in an “Occupational Accident” insurance program through a master policy issued by a third-party insurer. Such Occupational Accident coverage affords medical, disability and death benefits from a licensed insurer to workers who sustain injuries in connection with the delivery of their services, similar to workers compensation insurance. Any proposed legislation should consider the existing marketplace for benefits to rideshare workers and aim to harmonize any new government-mandated benefits programs with those already in existence. Creating a legislative task force to consider these and other issues raised above would represent a prudent step before advancing the bill in the legislative process.

 

Jack Vales is a partner, and Stephen Turner is an associate, in the Litigation and Dispute Resolution group at Dentons in Short Hills.