The California Labor Commission recently ruled that a San Francisco Uber driver is an employee, not an independent contractor. This ruling, which came to light last Tuesday when Uber filed an appeal, could have major ramifications. The debate over whether on-demand laborers should be classified as employees or independent contractors has been going on for a few years now fueled by the explosive growth of companies such as Uber and Lyft. And regulators in different states are sure to look at this ruling when they have to make a decision on the issue.
The case that was before the California Labor Commission involves a San Francisco driver, Barbara Ann Berwick, who worked for Uber from July to September 2014. She had decided to start driving for Uber, because she was bored working by herself as an entrepreneur and with being in front of a computer all day. Soon after she started driving for Uber, she believed that the independent contractor classification was unfair, and she filed a complaint with the California Labor Commission.
The Commission ruling can be summed up simply: the Commission stated that Uber has control “over every aspect” of the working relationship. Since control is a major factor in determining whether a laborer should be an employee, this Commission found that the driver is an employee.
If drivers are deemed employees, Uber will have higher costs and less flexibility. It would have to withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax (federal, and usually state unemployment as well). It would also be required to meet all requirements for employment, such as minimum wage laws, family and medical leave laws, and other laws affecting employees and employers particularly.
While this ruling may affect many businesses, it will affect particularly startups that use on-demand laborers in the growing shared economy space. If regulators and courts continue to classify fee laborers as employees, it will affect future profits and valuations and the viability of similar business models. Uber currently intends to raise more money at a $50 billion valuation.
Although this decision does not go beyond this one particular driver, it does open the door for more complaints with the Labor Commission and sets a precedent for other cases addressing the same issue. But Uber has cited other instances, including a previous 2012 California Labor Commission decision and decisions in five other states, where regulators have sided with Uber and concluded that the drivers were independent contractors.
This debate looks set to continue given the conflicting rulings as to whether an Uber driver is an employee, and the latest California Labor Commission ruling will make the debate even more interesting.
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Photo: Vjeran Pavic | Flickr
