California Rules Drivers for Uber Are Employees, Not Contractors

Uber drivers protested working conditions in Santa Monica, Calif., last year. (PHOTO CREDIT: Lucy Nicholson/Reuters)
Uber drivers protested working conditions in Santa Monica, Calif., last year. (PHOTO CREDIT: Lucy Nicholson/Reuters)

In a ruling that fuels a long-simmering debate over some of Silicon Valley’s fastest-growing technology companies and the work they are creating, the California Labor Commissioner’s Office said that a driver for the ride-hailing service Uber should be classified as an employee, not an independent contractor.

The ruling ordered Uber to reimburse Barbara Ann Berwick $4,152.20 in expenses and other costs for the roughly eight weeks she worked as an Uber driver last year. While Uber has long positioned itself as merely an app that connects drivers and passengers — with no control over the hours its drivers work — the labor office cited many instances in which it said Uber acted more like an employer. Uber is appealing the decision.

The ruling does not apply beyond Ms. Berwick and could be altered if Uber’s appeal succeeds. Uber has also prevailed in at least five other states in keeping its definition of drivers as independent contractors. Yet the California ruling stands out because officials formally laid out their arguments for why Uber drivers are employees. That could bolster class-action lawsuits against the company in the state. California law expressly requires employers to reimburse employees for business expenses and several suits proceeding against Uber are based on that state law.

Companies like Uber and its rival Lyft, and Instacart, a grocery delivery service, have long faced questions about whether they are creating the right kind of employment opportunities for both the economy and for workers. The technology companies have contended that their virtual marketplaces, in which people act as contractors and use their own possessions to provide services to the public at the touch of a smartphone button, afford workers flexibility and freedom.

Yet labor activists and others have said such roles — with people working as freelancers and having little certainty over their wages and job status — are simply a way for companies like Uber to minimize costs, even as they maintain considerable control over drivers’ workplace behavior. They say that such control is typically the hallmark of an employee relationship, which should bring with it benefits, more stable pay and greater job security.

The classification of freelancers is in dispute across a number of industries, including at other transportation companies. And the debate is set to escalate as the number of online companies and apps like Uber and others rises. Venture capitalists have poured more than $9.4 billion into such start-ups — known as on-demand companies — since 2010, according to data from CB Insights, a venture capital analysis firm, spawning things like on-demand laundry services and hair stylists.

“For anybody who has to pay the bills and has a family, having no labor protections and no job security is at best a mixed blessing,” said Robert Reich, former secretary of labor and a professor of public policy at the University of California, Berkeley. “At worst, it is a nightmare. Obviously some workers prefer to be independent contractors — but mostly they take these jobs because they cannot find better ones.”

The California ruling, which was made June 3 and came to light after Uber filed an appeal Tuesday evening, noted that the company provided drivers with phones and had a policy of deactivating its app if drivers were inactive for 180 days.

“Defendants hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation,” the Labor Commissioner’s Office wrote about Uber. “The reality, however, is that defendants are involved in every aspect of the operation.”

In a statement, Uber said the decision was “nonbinding and applies to a single driver.” The company said individual cases about worker classification in at least five other states, including Georgia, Pennsylvania and Texas, have resulted in rulings that categorize drivers as contractors.

In May, authorities in Florida also said a former Uber driver should be classified as an employee to claim unemployment benefits, a decision Uber is appealing.

Yet politicians, lawyers and others quickly seized upon the California ruling as one that could have more repercussions for Uber and other similar companies.

“Today’s ruling from the California labor regulators demonstrates why federal policy makers need to re-examine the 20th-century definitions and employment classification we’re attempting to apply to a 21st-century work force,” said Senator Mark R. Warner, a Democrat from Virginia.

In California, Uber faces class-action lawsuits from drivers saying they were misclassified as independent contractors. Shannon Liss-Riordan, a Boston-based employee and labor rights lawyer who is involved in the lawsuits on behalf of drivers against Uber, said the commissioner’s office ruling would be “helpful” to the suits, which argue drivers should be reimbursed for expenses.

“This is a very big deal,” she said. “Uber has been fighting very hard against any decisions like this coming out, and when a fact-finder sat down and looked at the situation, they determined that Uber is an employer.”

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SOURCE: NY Times, Mike Isaac and Natasha Singer