Employee or contractor? Uber ruling could affect other companies

Uber Driver 'Employee, Not Contractor'

Uber is facing roadblocks to its rapid growth from a California ruling that threatens to drive up payments to its drivers, which could increase costs for users of its car service app.

A recent decision from the California Labor Commissioner's Office ruled that a former Uber driver was an employee of the company, not an independent contractor as the firm has labeled its chauffeurs. The decision is nonbinding, but Uber has now appealed it to the California court system. This has begun a process that has a good chance of ending in a legal precedent that could affect all Uber drivers in California and the broader sharing economy, says David Rosenfeld, a union counsel at the law firm of Weinberg, Roger and Rosenfeld.

"Based on the decision, I think Uber is going to lose this appeal at the trial court and the court of appeals," says Rosenfeld, who is also a lecturer at the University of California-Berkeley School of Law. "The California Supreme Court is also full of Democratic appointees that are employee-friendly. Any employer would have a tough road in the California Supreme Court."

The labor commissioner's office ruled that former Uber driver Barbara Ann Berwick was entitled to receive more than $4,000 in expenses because the company "would not exist" without drivers like her. California law mandates that businesses must cover the work costs of their employees including gas or parking, which the company currently does not cover.

This decision will likely inspire workers to sue other businesses like rival car-sharing service Lyft or food delivery application Postmates, which define workers as "independent contractors" rather than employees in an effort to avoid paying them certain expenses or benefits, Rosenfeld says. Reimbursing workers for expenses or providing other benefits, however, would hinder the inexpensive labor model of the sector and potentially create new costs for consumers who have become accustomed to convenient, on-demand service, he adds.

Uber has fought to call itself a technology company, rather than a car service or transportation company, in an effort to avoid regulation or labor disputes, Rosenfeld says. The company's formal name is Uber Technologies, which emphasizes its development of smartphone apps.

"Uber is only satisfactory if the drivers give satisfactory service, so they need control over Uber drivers and have rules they have to abide by," he says. "The more economically dependent a company is over its workers and the more control they seek over those workers the more likely a court is to determine that those people are, in fact, employees."

The success of any worker lawsuit against a sharing-economy site would depend on the labor laws in different states. Labor authorities in Georgia, Pennsylvania, Texas, Colorado, Illinois and New York have upheld Uber's classification that its drivers are independent contractors, a spokeswoman for the company tells U.S. News.

"The California Labor Commission's ruling is nonbinding and applies to a single driver," the Uber spokeswoman says.

The Florida Department of Economic Opportunity, however, ruled on a similar case in May, deciding that former Uber driver Darrin McGillis was an employee of the company and thus able to collect unemployment insurance.

Sharing-economy sites like Uber keep trying to offer low prices and convenient service at the expense of worker's rights, argues Shannon Liss-Riordan, a partner at the Boston law firm of Lichten & Liss-Riordan. Liss-Riordan is suing the car service in a class-action lawsuit demanding that Uber pay work expenses for all of its California drivers. She also filed similar class-action lawsuits in March in California against food delivery service applications Caviar and Postmates, along with mobile app maid service Homejoy, seeking payments of work-related expenses for those workers.

Representatives from Homejoy, Postmates and Caviar could not be reached for comment.

If her lawsuits are successful, then "future cases demanding employee benefits ... could be a repercussion," she says.

"The writing is on the wall for Uber that it has been trying to push its labor costs on drivers," she says. "There are a lot of companies that have been trying to copy Uber's model and do the same things."

Amazon is also reportedly planning to copy some of Uber's tactics by creating a mobile application that would enable ordinary people, in some cases, to pick up and deliver packages in cities, The Wall Street Journal reports.

The same issue Uber faces of imposing rules and requirements on amateur workers could make it difficult for Amazon to avoid calling those people employees when they are providing a delivery service that is a key part of the online shipping company, Rosenfeld says.

"Amazon relies on rules about how their delivery works; their brand is important," he says. "The app-driven workforce is going to lead to more control, so you are going to see more decisions like this one about Uber."

Copyright 2015 U.S. News & World Report

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