By Eric Newcomer and James Nash | Bloomberg News
California’s labor commissioner said an Uber Technologies Inc. driver who connects with customers through the company’s app must be considered an employee, a decision that strikes at the heart of its business model.
San Francisco-based Uber, like other “sharing economy” startups, has built a business around a flexible car fleet piloted by people it contends are independent contractors. If Uber’s drivers were treated as employees, the company would be required to guarantee them a minimum wage, compensate them for mileage and pay into social security.
“We see this as a problem that’s growing larger with each year, with employees lacking security and even basic rights when they are treated as independent contractors,” said Steve Smith, spokesman for the California Labor Federation, which has backed tougher regulations on ridesharing companies.
Comments by David Weissman, Rose Law Group Employment Law attorney:
“The implications of the California Labor Commission’s ruling in this case cannot be understated.
“While this particular decision only applies to the individual Uber driver who brought her claim in front of the Labor Commission, it could easily be used as the basis for similar claims by larger groups of Uber drivers around the country who would prefer to be treated as employees rather than independent contractors. The advantage to the drivers of being considered employees include guaranteed wages (i.e., entitlement to at least the minimum wage), payment by the company of certain employment taxes, potential company-provided insurance and other benefits and, in some states, reimbursement for business expenses.
“On the other hand, being treated as a contractor provides the drivers greater flexibility in scheduling, the ability to work outside of Uber and more freedom to conduct their business in the way they see fit. A nationwide decision that Uber’s drivers are employees would dramatically impact the company’s business model – potentially devastating the company – and would call into the question the relationship between the growing number of other app-based on-demand type companies and their workers.
“If nothing else, this case is a good reminder of how careful employers must be when classifying workers as independent contractors, as various state and federal government agencies have been looking very closely at this issue in recent years. When in doubt, companies are best advised to consult with counsel.”
