California Labor Commission rules Uber drivers are employees
Uber to appeal decision that threatens its existing business model
TAX ALERT |
In June, the California Labor Commission issued a ruling in the case of Uber Technologies Inc. v. Berwick, where following analysis into the relationship between the parties, an Uber driver was determined to be an employee of the company and not an independent contractor. Uber has announced its intention to appeal. A final determination that Uber drivers are employees and not independent contractors would have far reaching consequences for the company and provide a new source of analysis in the area of employment law.
It was in the context of a wage and expense reimbursement dispute that the Labor Commission considered whether or not an employment relationship between the driver and the company existed. The commissioner relied on the factors established in the California Supreme Court case of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations (1989) 48 Cal. 3d 341, to conduct its independent contractor/employee analysis. These factors are California's mechanism for evaluating the degree of behavioral and financial control within the relationship.
Uber argued that they exercised very little control over the activities of the driver. The driver could choose when or when not to work and put in as little or as much time as she pleased. They characterized themselves to the court as a neutral technological platform, designed to connect drivers and passengers, and facilitate the business of transportation. In its review of the various factors, however, the Labor Commission came to a very different conclusion. The court, citing the Borello decision, indicated that it was not necessary for the company to exercise complete control over the worker's activities in order for that worker to be an employee. Rather, the court's decision hinged on Uber's control over "the operation as a whole."
Specifically, the court looked at Uber's policies in vetting drivers, which included background and DMV checks and their requirements regarding the driver's vehicles. Driver's cars cannot be older than 10 years and they are required to keep minimum levels of insurance. Only Uber could approve and register drivers to use their software application and those drivers who did not possess an iPhone enabling them to access the application were provided with one. Drivers were also required to maintain a minimum rating at the risk of losing access to the application. Finally, only Uber could negotiate the fee with the passenger and barred drivers from accepting tips from passengers. All of these elements led the labor commissioner to conclude that the driver in the case at hand was an employee.
The reclassification of Uber drivers from independent contractors as employees would have a significant impact on the company and its business model as they would now be subject to the entire regime of employment laws and statutory protection in place for employees. As there are several conflicting decisions with this one in other jurisdictions, it will be worth following the case as Uber's appeal works its way through the courts in California. Given the innovative nature of the company and its software platform, the decision ultimately serves as a reminder to all companies to pay special heed to the type of relationship it has with its workers as well as its employment policies since the reclassification of independent contractors can ultimately be a costly affair.