California Rules Uber Driver is Employee, Not Contractor

The ruling could have vast implications for the sharing economy.

uber protest
Uber drivers

UPDATE: An Uber spokesperson emailed Quoted to clarify that the ruling was non-binding, meaning that the law applied to just the one driver involved, not all California drivers. The company’s statement follows:

“Reuters’ original headline was not accurate. The California Labor Commission’s ruling is non-binding and applies to a single driver. Indeed it is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver ‘performed services as an independent contractor, and not as a bona fide employee.’ Five other states have also come to the same conclusion. It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.”

Uber has just suffered a blow at the hands of the California Labor Commission, which asserted that a San Francisco-based Uber driver was an employee of the company, not an independent contractor. The ruling, which was filed on Tuesday in state court in San Francisco, has sizable implications for the company’s future: If Uber drivers are employees, and not just contractors, the company might then be held responsible for costs like unemployment insurance, health insurance, workers compensation, and social security. This ruling could also affect the company’s sky-high valuation of $40 billion—in addition to potentially having ripple effects on many other on-demand economy based apps and services.

Uber could stand to lose money if its drivers are employees, not contractors.

Uber’s argument in the case was that the company is merely a neutral platform—the means by which these drivers can make money. Essentially, Uber has long argued that its drivers are freelancers, and therefore not entitled to pricey benefits. But the Commission argued that Uber monitors approval ratings and terminates access to the system for those drivers’ whose ratings fall below 4.6—thereby making them employers.

Implications of the Ruling

Though the ruling only affects California, the state is Uber’s home base, and one of its largest markets. The ruling could have serious implications for the future of the on-demand economy, into which venture capitalists have invested more than $9.4 billion since 2010, according to data from CB Insights. The question is, How many of these apps and services rely on their employees not really being employees to remain profitable?

The New York Times reports that in a statement, Uber said, “The California Labor Commission’s ruling is nonbinding and applies to a single driver.” But legal precedent is a powerful thing, and it remains to be seen how the ruling will affect the company’s future.

The New York Times also reports that the company claims to have 26,000 drivers in New York City, and 22,000 in San Francisco. The company is now operating in more than 300 cities across six continents.

The Drivers’ Opinions

We reached out to Harry Campbell, of The Rideshare Guy, for input from a driver and expert. We asked Campbell his opinion on the ruling and whether he identified more as an employee of or contractor with Uber.

Campbell’s response:

“I think most drivers actually don’t want to be employees because they value the flexibility of being a rideshare driver. But it’s also pretty clear that on-demand companies like Uber benefit a whole lot more from the IC relationship than drivers do. They’re able to pass on operating costs and risk to drivers while growing at an astronomical pace themselves.

At the same time, drivers do have some freedoms to work when they want but there are lots of things beyond our control that point more to an employer/employee relationship than IC. Drivers have to accept 90 percent of requests and aren’t allowed to set their own rates, for example, which leads to situations where drivers may actually be losing money on certain rides. On a $4 minimum fare for example, drivers only receive $2.40 and their operating costs could easily exceed that if they have to drive 5-10 miles to pick up their passenger.

So in my mind, this ruling is a step in the right direction since it may force Uber and the courts to recognize a hybrid classification of worker. I think drivers value a semi-flexible schedule but still want some of the protections afforded to W2 workers.

Drivers, we’re curious: Do you feel like an employee, or a contractor? How would you rather be treated?