California Says that Uber Drivers are Employees, Not Contractors

Ride-sharing app Uber hit a major speed bump. The California Labor Commission ruled that its drivers are employees, not independent contractors. Uber was ordered to pay $4,000 to a driver for mileage and tolls. While that’s nothing for a company valued at $50 billion, this seemingly small distinction over what to call its drivers could mean significant changes in Uber’s business structure, and tons of money. It could also shake up the whole sharing economy just as it’s being created.

Employee vs. Independent Contractor

The difference between an employee and an independent contractor is very important for any business. The hard part is that the business does not get to choose how their workers are classified. And that classification is measured largely by the amount of control the employer has over the worker. If an employer controls the hours, wages, type of work done, and other things then the worker is likely an employee. If the worker has his own business, makes his own hours, and is paid a flat fee, it’s likely he’s an independent contractor. This distinction has a major impact on the business. The business must pay for its employees’ supplies, healthcare, withhold taxes from paychecks, and take on legal liability for the employees’ acts. An independent contractor must pay its own taxes, cover its own supplies, and is liable for their own acts.

Uber Drivers are Employees

The Commission looked at Uber’s business model and determined that Uber is “involved in every aspect of the operation.” Specifically, Uber sets rates, chooses drivers based on standards, and can fire drivers. This amount of control suggested to the Commission that the drivers were employees, not independent contractors like Uber argued. For Uber, that means it may have to pay for its drivers’ gas, car maintenance, tolls, healthcare, workers compensation, and taxes. Multiply that by more than 160,000 active drivers and you’ve got some significant costs. The driver who filed the suit only drove for a few months, and Uber had to pay her $4,000 in mileage and tolls. The Commission isn’t the only one that determines the employee/independent contractor question. The IRS is the most diligent watchdog on this matter, and courts are often involved. Florida’s unemployment agency has also ruled that Uber drivers are employees, and a court in San Francisco is considering the same question regarding tips.

Sharing Economy or Just a Company Exploiting Workers?

Ultimately, this affects not just Uber and ride apps, but the sharing economy as a whole. The entire structure is based on the independence of those doing the work from the companies that bring them together with buyers. If that relationship is undermined, then these companies are nothing more than giant corporations with a large workforce – just like everyone else. WashPo – Uber Diver is an Employee

Interestingly, the reporting on this issue has been very pro-worker. While the legal issues are complex, the media has portrayed protests as widespread, like the above photo from Reuters showing a protest at the headquarters in San Francisco. It has been used by various news outlets to suggest unrest on the streets, yet those protests actually petered out with very low turnout. On the other hand, protests in other parts of the world, such as France, were significant. Here in the US, it seems the issue will be decided in the courts rather than the streets.