from Robert Wenzel . . .
In a decision that has the potential to alter — and perhaps cripple — Uber’s business model, the California Labor Commission has ruled that drivers for the ride-hailing service are employees of the company rather than independent contractors.
Right now, as Business Insider notes, Uber faces virtually no expenses for the more than one million drivers who give rides using the service. If the ruling holds, though, all of those people become employees of the company, and that exposes Uber to such costs as Social Security, workers’ compensation, and unemployment insurance. That would be a huge expense for Uber and threaten its entire business model.
If Uber is unable to find a way around the ruling other states are likely to follow California, which could be a death blow to the company.
Here’s more details via WSJ:
California’s labor commissioner has ruled that a driver for Uber Technologies Inc. should be classified as an employee of the company, a decision that could set a precedent for how the ride-hailing service compensates its more than 200,000 drivers.
Uber has been ordered to pay Barbara Berwick, a San Francisco driver for Uber from July to September of last year, more than $4,100 to cover the costs of vehicle mileage and tolls, the commissioner said in a June 3 ruling that was filed in California state court on Tuesday.
The regulator found that Uber is “involved in every aspect of the operation,” from vetting drivers and their vehicles to setting rates for trip fares, and therefore is legally an employer of its drivers. Uber had unsuccessfully argued that because it is just a smartphone service for matching passengers with a ride, its drivers should be classified as contractors.