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Uber Agrees to Pay N.J. $100 Million in Dispute Over Drivers’ Employment Status

Uber has agreed to pay New Jersey $100 million in back taxes after the state said the taxi company misclassified its drivers as independent contractors.

An audit by the state’s Department of Labor and Workforce Development found that Uber and its subsidiary, Raiser, owed four years of back taxes for classifying drivers in the state as contractors rather than employees. On Monday, the department announced that Uber has paid the taxes with interest.

“Our efforts to combat the misclassification of workers in New Jersey continue,” Robert Asaro-Angelo, the department’s commissioner, said in an interview. “It goes to show that these workers in New Jersey are supposed to be employees. Regardless of a company’s business model or what their technology is, workers have rights.”

The settlement appears to be a retraction of the taxi company’s repeated claim that its drivers should not be classified as employees. Uber and other gig companies have been campaigning aggressively for years against attempts by lawmakers and courts to classify their drivers as employees. But an Uber spokeswoman said in a statement that the company’s stance hadn’t changed.

“Drivers in New Jersey and nationally are independent contractors who work when and where they want — an overwhelming number do this type of work because they value flexibility,” said Alix Anfang, the spokeswoman. “We look forward to working with policymakers to deliver benefits while maintaining the flexibility drivers want.”

The New Jersey Department of Labor and Workforce Development initially demanded payment of Uber’s back taxes in 2019, the first time a local government had recovered payroll taxes from the company. The move marked a significant change in the way states treated the labor practices at the heart of “gig economy” companies like Uber.

In recent years, states and cities across the country have tried to rein in gig economy companies that rely on cheap and independent labor. These efforts could reshape the business models of companies like Uber, but the legal landscape is far from settled.

California and Massachusetts have laws that require gig workers to be designated as employees if certain criteria are met. Mr. Asaro-Angelo said those laws followed the example of New Jersey, which has similar protections on the books.

In 2019, when the state first demanded that Uber refund taxes for misclassifying drivers, it said the company and Raiser, its subsidiary, owed much more than $100 million. An audit found that $530 million in back taxes was unpaid for unemployment and disability insurance from 2014 to 2018, according to news reports. The state also demanded $119 million in interest.

After Uber challenged the department’s findings, the case was turned over to the New Jersey Office of Administrative Law. In the end, the company agreed to pay a revised amount and withdraw the appeal.

The department now says the initial audit was an estimate made without Uber’s cooperation. Based on employee payroll records provided by Uber, a subsequent audit determined that Uber and Raiser together owed $78 million in back taxes plus penalties and $22 million in interest.

The payment will cover as many as 91,000 drivers who worked in New Jersey during one of the years covered by the settlement. It will help provide benefits such as unemployment, temporary disability, and family leave insurance.

Mr. Asaro-Angelo declined to say how the department would deal with taxes Uber may owe after 2018 or in the future. “It seems that every year the legislature and the governor pass new laws to improve the lives of workers and give us more power to protect them,” he said.