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Uber Drivers Are Employees Not Contractors, Rules California

The California labor commissioner has ruled that an Uber driver is an employee of the company, not a contract worker as Uber has insisted all its drivers are, setting up another battle between state regulators and the ride-hailing giant.

By Heather Somerville

The California labor commissioner has ruled that an Uber driver is an employee of the company, not a contract worker as Uber has insisted all its drivers are, setting up another battle between state regulators and the ride-hailing giant.

Uber on Tuesday filed a notice of appeal with San Francisco Superior Court, preparing to argue against the Labor Commissioner's decision, which ordered Uber to pay Barbara Berwick, a San Francisco driver for Uber from July to September of last year, $4,152 to cover the costs of vehicle mileage and tolls, The June 3 ruling was filed in state court on Tuesday.

Uber is "in the business to provide transportation services to passengers," the decision says. "(Berwick) did the actual transporting of those passengers."

Without Berwick or its other drivers, the ruling says, Uber's "business would not exist."

California becomes the latest state to challenge Uber's business model by declaring drivers are employees rather than contract laborers. In May, the Florida Department of Economic Opportunity ruled that a former Uber driver who was fired was an employee and had the right to collect unemployment benefits. Uber is contesting that decision. At least five other states have also issued rulings that classify Uber drivers as employees, according to the company, but reversed them after Uber appealed.

"The California Labor Commission's ruling is non-binding and applies to a single driver," an Uber spokeswoman said in a written statement. "Indeed it is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver 'performed services as an independent contractor, and not as a bona fide employee' ... It's important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies."

Still, the rulings signal that Uber's business model, which relies on contract workers who do not receive benefits such as disability pay, health care or vacation days, may not be as resilient as Uber thought. If Uber has to make its drivers full-time employees, the company's growth would slow dramatically, and much of the revenue it can now put into expanding operations and experimenting with new services such as food delivery would go to paying driver benefits. But many ride-hailing drivers have long argued that they work more than 40 hours per week for the company and rely on driving as their sole income, and have the right to benefits and protections provided by employment laws.

Uber would also likely have to overhaul its hiring process; currently the company recruits as many drivers as it can as quickly as it can -- offering perks such as a free tank of gas if they sign up -- and is protesting legislation that would require the company to drug test drivers, for fear it would slow the hiring process.

Uber, which just celebrated its five-year anniversary and operates in 311 cities and 58 countries, has hundreds of thousands of drivers, including 22,000 in San Francisco alone. It's currently valued at $41 billion.

If the California ruling sticks, it would likely have ramifications for dozens of other startups, such as TaskRabbit and Homejoy, who use contract labor and not full-time employees, and have been able to grow their revenue and valuation as a result.

Berwick filed a claim Sept. 14 for unpaid wages and expenses during her five-month tenure with Uber, and a hearing was conducted in March, according to state documents. She said she drove for 49 days for Uber and paid $256 in bridge tolls during that time. She also received a $160 ticket for stopping in a lane of traffic to pick up a passenger. She quit driving for the service on Sept. 18.

Uber argued that it is a smartphone app that it licenses to drivers, and the ride-hailing company doesn't have any control over a driver's schedule or number of hours worked. Uber also said it doesn't reimburse drivers for expenses related to operating their vehicles; Uber itself does not own any vehicles.

However, the labor commissioner decided that it wasn't necessary for a company to have complete control over a worker's hours or activities for that worker to be a full-time employee. The ruling also said that the fact that Uber doesn't own any cars doesn't mean its drivers aren't full-time employees; pizza delivery workers use their own cars, and they are considered employees of the pizza restaurant.

The Labor Commissioner also rejected Uber's claim that it is nothing more than a tech platform. Berwick used the iPhone application that is built and provided, and can also be taken away, by Uber; without it, she could not have worked.

"The reality, however, is that Defendants are involved in every aspect of the operation," the ruling says.

Berwick is also claiming Uber owes her pay for more than 470 hours of driving; however, court documents show that Uber did indeed pay her for that time, paid to Berwick's personal business account, called Berwick Enterprises, rather than to her directly. Court documents also say Berwick had asked Uber to send the wages to her company, so its unclear why she is contesting this.

A spokeswoman from the state Department of Industrial Relations said department staff were still researching the matter and could not immediately comment.

(c)2015 the San Jose Mercury News (San Jose, Calif.)

Caroline Cournoyer is GOVERNING's senior web editor.
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