California Court Rules Uber Drivers Are Employees

A California-based service known as Uber, has become increasingly popular over the last several years, and has stood at the forefront of the so-called “sharing economy.” The service allows drivers to volunteer their services via a mobile application, and it has deeply cut into the taxi industry in cities Uber services.

A California-based service known as Uber, has become increasingly popular over the last several years, and has stood at the forefront of the so-called “sharing economy.” The service allows drivers to volunteer their services via a mobile application, and it has deeply cut into the taxi industry in cities Uber services.

However, the dazzling star of the sharing economy was dealt a major setback on Wednesday when the California Labor Commission ruled that the company must consider one of its drivers an employee. The ruling came in a case brought by Barbara Ann Berwick in which she sought approximately $4,000 in unpaid wages and expenses related to her work through Uber. The ruling issued earlier in June 2015 and was reported by the Christian Science Monitor. Uber has announced it plans to appeal the decision.

Since its launch in 2009, Uber has grown at a phenomenal rate. In just six short years, the company has grown to operate in 58 countries around the world, 300 cities, and amassed a company valuation of $40 billion ($2.8 billion of which is venture capital). In March 2015, the number of Uber cars on New York City streets surpassed the number of yellow taxis.

The company has a remarkable business model that leverages automation and mobile technology to keep operational costs remarkably low. Uber has just 1,000 employees, but more than 167,000 drivers that, until the California ruling, were all considered independent contractors. Drivers provide their own vehicles, set their own hours, and provide their own gas, while Uber merely acts as the middleman, connecting drivers with passengers and collecting a commission from fares.

However, the ruling found that Uber exerted too much control over its drivers, creating an employer-level of dominion over these workers. Its opinion noted that Uber involved itself in every aspect of its drivers’ operations, including maintaining specific parameters for vehicles driven, mobile devices used to access the service, and even terminating drivers if users rated their services too low.

The ruling calls into question many of the tenets of the so-called sharing economy. These businesses use models that allow individuals to use their own resources to make money through a regulated platform. Workers set their own schedule and, in some cases, their own rates.  However, the servicing company typically reaps most of the benefit with little effort or investment. Other well-known examples include Uber’s rival, Lyft and hotel-alternative service AirBNB. However, if those availing themselves of these services could become employees, it exposes the underlying company to enormous liability, administrative costs, and possible back taxes and other consequences of misidentified personnel. That could lead to a quick end to the sharing economy.

The California ruling is not the first black eye for Uber’s business mode. Last month, Florida’s Department of Economic Opportunity ruled that a Miami driver, whose vehicle was hit while working for Uber and taken out of commission, should receive unemployment compensation from Uber as an employee. Uber insists both of these cases are isolated and lack precedential value.