People don’t spend a lot of time reading the decisions of the California Labor Commissioner’s Office, but if they did, they would know that it recently ruled in favor of Barbara Ann Berwick, a driver for Uber in San Francisco. She filed a claim asking to be reimbursed for $4,150 in costs incurred when she drove for Uber in 2014. The crux of her claim was that she was an employee of, not an independent contractor as Uber claims all its drivers are. The California Labor Commissioner’s office agreed. It said in its ruling,
Plaintiff’s work was integral to Defendants’ business. Defendants are in business to provide transportation services to passengers. Plaintiff did the actual transporting of those passengers. Without drivers such as Plaintiff, Defendant’s business would not exist.
While Uber is the poster child for the so-called “sharing economy” that will allow anyone with a smart phone to make money over the internet, by classifying its employees as independent contractors, it avoids paying many of the federal, state and local fees imposed on other employers, such as unemployment insurance, overtime pay and Social Security. Many of its competitors claim this gives Uber an unfair advantage in the marketplace.
According to The Nation, the commission considered factors like the length and permanence of the service relationship and level of skill or supervision involved. In its ruling, the Commissioner’s Office found that Uber could not treat drivers simply as users of their app. It determined that drivers produced integral business value, through labor that Uber leverages by, for example, screening prospective drivers, controlling intellectual property use, and setting technical standards for vehicles.
More importantly, the company tightly controls driver’s schedules and income. When a ride requester is a no-show or ditches the ride early, drivers aren’t guaranteed a cancellation fee, but Uber still reaps tidy profits.
Sarah Leberstein, staff attorney with the National Employment Law Project, says the recent legal and media scrutiny of the global brand reveals that “Uber is…deriving their profits by maintaining this ongoing relationship with this fleet of drivers over whom they have many controls. They’re essentially determining how much the drivers are making because they’re setting the fares and determining what share that drivers get.”
Uber has appealed the Labor Commissioner’s Office decision. If the decision is upheld by the courts, Uber could incur significant new costs that may affect the company’s high flying stock price. It could also have a follow on effect on other internet based services and put a crimp it the sharing economy model.
It’s actually surprising the federal government has not been on Uber’s trail already. The company has so far escaped paying withholding taxes to the IRS or Social Security and Medicare payments. If you are an employer and have to shoulder those burdens, you may rightfully wonder why Uber and others like it should escape doing so.
One thing is for sure, Uber has the resources to pursue its legal options all the way to the Supreme Court if it so chooses. Barbara Ann Berwick is going to have to wait a while before she gets her money.