Ride-sharing firm Uber took another body blow in it’s ongoing battle with government regulators this week. The California Labor Commission ruled that a driver who filed a complaint against Uber Technologies was an employee of the company, and not an independent contractor, and awarded damages of $4152.
Legal experts say the problem for Uber is not the damages per se, but that it is another big defeat in its never-ending legal battle with government regulators worldwide. According to some analysts, the ramifications of this decision on Uber drivers could eventually have a notable impact on the firm’s valuation.
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Details on California Labor Commission ruling on Uber drivers
Barbara Berwick, who describes herself as “a community activist,” was an Uber driver from July to September of 2014. In her complaint, she argued that she should be compensated for her time, including reimbursement for some costs.
The commission actually denied Berwick’s claim she should have been paid a minimum wage, but granted her claim for reimbursable expenses. The expenses included $3,622 for the 6,486 miles she drove for Uber and $256 in toll charges. The total amount also includes $274 in interest.
According to the text of the commission’s ruling, “In light of the above, Plaintiff was Defendants’ employee.”
Not surprisingly, Uber has already begun an appeal of the ruling.
Uber’s business model
Uber drivers currently have to pay all vehicle costs, including the cost of the vehicle, maintenance, insurance and gas, because the company claims that its drivers are independent contractors and not employees.
Analysts note if Uber has to treat drivers as employees, it will likely have to pay more of of those costs, meaning less profits for investors.
The labor commission ruling highlights that Uber claims it is “nothing more than a neutral technology platform,” whereas Uber actually still has a lot of control over drivers, such as how much they can charge, the type/model of cars they can drive, and even how often they work.
The firm’s past efforts to reduce its rates to compete with Lyft and other ride-sharing enterprises has led to protests in New York City and elsewhere, with drivers argued the rate cuts shrank their earnings without reducing their costs.
Moreover, Uber’s decision to call its drivers independent contractors helps protect Uber from liability.
Several transportation-related labor unions have also protested the firm’s hands-off approach to its drivers and obvious intentions to maximize profits.
UPDATE — Statement from Uber
According to an Under spokesperson:
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.