In California, Uber driver is employee, not contractor

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Uber Driver Ruled Employee, Not Contractor, in CA | Crunch Report
A driver for Uber is an employee, not a contractor, according to a California ruling that eventually could push up costs for the smartphone-based ride hailing service and hurt the closely watched start-up's valuation.

The California Labor Commission's decision could ripple through the burgeoning industry of providing services via smartphones, with potential implications for other "crowdsourced" services such as Uber rival Lyft, chore service TaskRabbit, and cleaning service Homejoy.

The ruling - which Uber insisted applied to only one driver - was the latest in a series of legal and regulatory challenges facing the company and other highly valued start-ups in the United States and other countries.

The June 3 ruling, which applies only in California, came to light on Tuesday after Uber appealed it in a filing in state court in San Francisco, where both the company and the driver in the case are based.

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In California, Uber driver is employee, not contractor
Indian drivers for Uber show mobiles phones given to them by the company during a one-day hunger strike against the US-headquartered transportation service in Hyderabad on August 28, 2015. The drivers allege they were not making as much money as promised by Uber. India counts as Uber's second biggest market after the United States and the company claims around 35 percent of Indian market share with 150,000 'driver entrepreneurs.' AFP PHOTO/NOAH SEELAM (Photo credit should read NOAH SEELAM/AFP/Getty Images)
UberPOP driver Anthony Loussala-Dubreas, 24, of Paris, turns on his smartphone in his car in Paris, Friday, Dec. 12, 2014. A French court on Friday ordered Uber to withdraw from its mobile app to French users "all mention suggesting it is legal" for Uber's drivers to act like taxis — that is, driving around and waiting for clients. But the court did not ban the popular ride-hailing service. (AP Photo/Bastien Inzaurralde)
The Uber app is seen on a smartphone past cabs waiting fro clients near the Sagrada Familia in Barcelona, on December 9, 2014. A judge on December 9, 2014 banned the popular smartphone taxi service Uber from operating in Spain, court officials said, following similar prohibition action in several other countries. AFP PHOTO/ QUIQUE GARCIA (Photo credit should read QUIQUE GARCIA/AFP/Getty Images)
The photograph of UberPOP driver Anthony Loussala-Dubreas, 24, of Paris, is seen on his UberPOP application on his smartphone in his car in Paris, Friday, Dec. 12, 2014. A French court on Friday ordered Uber to withdraw from its mobile app to French users "all mention suggesting it is legal" for Uber's drivers to act like taxis — that is, driving around and waiting for clients. But the court did not ban the popular ride-hailing service. (AP Photo/Bastien Inzaurralde)
In this photo taken Tuesday, Dec. 16, 2014, a man leaves the headquarters of Uber in San Francisco. (AP Photo/Eric Risberg)
This Friday, Nov. 21, 2014, photo taken in Newark, N.J., shows smartphones displaying Uber car availability in New York. Uber is offering car service in 250 cities in 50 countries now, up from 60 cities in 21 countries just a year ago. Uber hasn’t released its financial figures to the public, so valuing the company is pure guesswork. (AP Photo/Julio Cortez)
The Uber app is displayed on a phone posed for photos near a woman peering into a car outside a office building in Beijing, Friday, Jan. 9, 2015. China has banned drivers of private cars from offering services through ride-hailing apps, throwing up a new hurdle to Uber Technologies Ltd.'s global expansion. (AP Photo/Ng Han Guan)
Baidu Chairman and CEO Robin Li speaks at a ceremony at the Baidu headquarters in Beijing on December 17, 2014. Baidu, China's leading search engine, and ride sharing company Uber announced a strategic investment and cooperation agreement on December 17. AFP PHOTO / Greg BAKER (Photo credit should read GREG BAKER/AFP/Getty Images)
The Uber app is seen on a smartphone past cabs waiting for clients near the Sagrada Familia in Barcelona, on December 9, 2014. A judge on December 9, 2014 banned the popular smartphone taxi service Uber from operating in Spain, court officials said, following similar prohibition action in several other countries. AFP PHOTO/ QUIQUE GARCIA (Photo credit should read QUIQUE GARCIA/AFP/Getty Images)
The Uber app is seen on a smartphone past cabs waiting for clients near the Sagrada Familia in Barcelona, on December 9, 2014. A judge on December 9, 2014 banned the popular smartphone taxi service Uber from operating in Spain, court officials said, following similar prohibition action in several other countries. AFP PHOTO/ QUIQUE GARCIA (Photo credit should read QUIQUE GARCIA/AFP/Getty Images)
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Classifying Uber drivers as employees could mean considerably higher costs for the company, including Social Security, workers' compensation and unemployment insurance.

That in turn could affect its valuation, currently above $40 billion, and the valuation of other companies that rely on large networks of individuals to provide rides, clean houses and other services.

Because it is appealing, Uber will not have to change the way it does business, for now.

Uber said in a statement that officials in five other states have found that its drivers are independent contractors.

And in 2012, the same California commission found that another Uber driver was an independent contractor, citing evidence such as the ability of the driver to determine his own hours.

But in this case, where the commission appeared to have considered a broader range of factors, officials found Uber is "involved in every aspect of the operation."

Uber, however, touted driver autonomy.

"The number one reason drivers choose to use Uber is because they have complete flexibility and control," the company said in a statement. "The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies."

Uber has argued for years that its drivers are independent contractors, not employees, and that it is "nothing more than a neutral technology platform."

But the commission said Uber controls the tools driver use, monitors their approval ratings and terminates their access to the system if their ratings fall below 4.6 stars.

Although the ruling affects only California, the state is Uber's home base, one of its largest markets, and sets a path often followed by regulators and courts in other states.

"Assuming it's upheld on appeal, it may be more than influential," said Thomas Wassel, a partner at Cullen and Dykman. "It will be controlling in California."

Establishing a nationwide rule on the status of the vast network of workers used by companies that rely on smartphone apps to match customers with services would take a new law by Congress or a ruling by the Supreme Court, he said.

The commission issued its June 3 ruling on a claim filed in September by San Francisco-based driver Barbara Ann Berwick, to whom the commission awarded about $4,000 in expenses. Uber filed its appeal on Tuesday.

In another case earlier this month, Uber lost a bid to force arbitration in a federal lawsuit brought in San Francisco by its drivers. Earlier this year, the same U.S. District Court rejected Uber's bid to classify its drivers as independent contractors, saying a jury would rule on their status.

In Florida, a state agency ruled earlier this year that Uber drivers are employees.

In New York, taxi-enforcement agents seized almost 500 Uber cars over the last six weeks for illegal street pickups, over half of all its seizures for illegal-pickup violations, the city's Taxi and Limousine Commission said. The seizures were first reported by the New York Post and the New York Daily News.

Other headwinds for Uber include controversies over passenger safety and "surge" pricing that increases with demand for cars.

(Editing by Jonathan Oatis)

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