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Uber has long tried to play itself off as simply a middleman, just dispatching independent drivers to consumers through its app -- and taking a big cut of their fare. Nothing but logistics, right? Not according to the California Labor Commission, who ruled today that the extensive control Uber has over its drivers makes them employees, not independent contractors.
The ruling is a major blow to the company, which has long resisted classifying its drivers as employees. Treating drivers as employees will require Uber to pay for Social Security, workers compensation, unemployment insurance, work expenses and other costs, all of which have been borne by drivers until now.
The Commission's ruling comes after an Uber driver, Barbara Berwick, filed a complaint alleging Uber owed her unpaid wages, reimbursement for work expenditures, and waiting time penalties. Central to the Commission's decision was the fact that Uber's drivers are "not engaged in occupations or businesses distinct from that" of Uber. Their work is the basis of Uber's business and Uber retains "pervasive control over the operation as a whole," even if some details are left to the drivers. From determining what cars drivers can use, to what fares are to be paid, to whether drivers can accept tips, Uber was involved in "every aspect of the operation." As the Commission noted, "without drivers such as Plaintiff, Defendant's business would cease to exist."
The implications of the ruling on Uber are enormous. Having driven for just eight weeks, Berwick was owed almost $4,000 for expenses -- had she worked a year with the same rate of expenses, she would be owed nearly $24,000.
That number doesn't include FICA taxes, costs of insurance and other benefits that Uber would be required to cover for its employees, either. For a company with thousands of drivers in California and over a million throughout the world, the Commission's ruling isn't just a liability, it's a blow to its very business model. Uber is sure to appeal the decision and is currently fighting off a driver class action which asserts similar claims.
Uber's business model is not unique -- indeed, it's been taken up by dozens of "on-demand" tech start ups, who sent out valets, house cleaners, dog walkers and delivery services with the touch of an app. Almost all of them classify those workers are independent contractors, requiring the workers to bear the burden of self-employment taxes, insurance, and work-related expenses.
Many app-based on-demand companies exert a Uber-esque level of control over, and dependence upon those workers. Those companies have brought in billions of dollars while operating outside the constraints of traditional employers. Should the Commission's logic apply to those companies as well, or should other regulators take a similar position, the basis of the industry could come into question.
Most companies probably wouldn't go up in smoke, according to The Washington Post, but they would see a drastic decline in profits.
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