Tuesday, July 7, 2015

California Says Uber Driver Is Employee, Not Contractor

The California Labor Commission recently ruled that an Uber driver is an employee, and not an independent contractor. Uber is a ridesharing service, which allows a user to order a car using his or her smartphone. The car then takes the user to his or her destination for a fee, similar to a taxi. In order for a driver to be part of Uber’s network, the driver must provide the company with a valid background check from the police, have a newer four-door car, and pass an interview. These are similar to the requirements necessary to be a taxi driver in most places. 

Uber drivers have almost always been classified as independent contractors. An independent contractor is hired to perform a particular task, with the person or business hiring the contractor having little control over the way the contractor performs the task. In contrast, an employee is hired to perform a number of different tasks, and is subject to the direction and control of an employer. An employer must pay employees overtime, and must pay Medicare and Social Security taxes for each employee. Conversely, an employer does not have to pay an independent contractor overtime pay or Medicare and Social Security taxes.  

A recent ruling by the California Labor Commissioner’s Office, however, held an Uber driver to be an employee, and not an independent contractor. The Commissioner’s ruling came in response to a lawsuit filed by an Uber driver seeking to be reimbursed for the expenses she incurred while she worked as an Uber driver. The Labor Commission held that the driver acted more like an employee than an independent contractor, as she was under the direction and control of Uber, who provided the passengers in need of the ride service and the drivers to conduct the service. The Commissioner gave little weight to the fact that the employee made her own hours, used her own vehicle, and paid for her own fuel and vehicle maintenance. 

The ruling only applies to the driver in this case, and therefore does not automatically classify all Uber drivers in California as employees. Nonetheless, this is bad news for Uber. The company may face a class action lawsuit from its drivers in California seeking overtime pay, reimbursement for expenses, and other benefits they would receive as employees. This decision may also motivate drivers in other states to file lawsuits against the company.

This would put a dent in Uber’s bottom line. If Uber drivers are classified as employees, the company will have to pay them for overtime and provide them health insurance by virtue of the Fair Labor Standards Act and Affordable Care Act (aka Obamacare), respectively. 

It will be interesting to see whether this ruling impacts other services that link customers to professionals, like Lyft, Homejoy, and TaskRabbit. If these services must classify the professionals with whom they do business as employees, it would almost certainly limit their growth. 

Uber drivers have faced significant opposition in many places, including Chicago, from taxi drivers. Taxi drivers argue that Uber drivers perform the same service that they do, and, therefore, should be subject to the same regulations, which usually include paying significant fees for a taxi license. It would not be surprising if taxi unions pressure departments of labor in other states to classify Uber drivers as employees, and not independent contractors. 

Stay tuned to The Workplace Report for more the updates on this topic.