The so-called sharing economy, which is largely based on people working for crowd-sourced applications and services, could face a new regulatory challenge (and be hurt financially) if a labor ruling stands that says the “contractors” for them, like Uber drivers, are actually employees. A California Labor Commission ruling, being appealed in state court, could have a considerable impact on Uber, other companies and the value of some start-ups.
The Labor ruling that a woman driver is an Uber employee, not a contractor, and that the company owed her more than $4,000, only applied to the driver who filed the complaint. However, the smartphone-based ride hailing service filed an appeal in state court and the eventual ruling there could have statewide, or even broader, labor law implications that will impact Lyft, Homejoy, TaskRabbit and other firms in the growing on-demand economy. In addition, there is a class-action case pending in federal court that could have an impact.
There could be tremendous cost implications for the firms if drivers are classified as employees by the courts. When someone is a contractor, the company for which they are doing work does not pay overtime, Social Security, unemployment and other costs. they also do not have to provide benefits (employers must offer health insurance under the Affordable Care Act for employees who work at least 30 hours a week). Accordingly, treating drivers like employees would drive up costs for the firm, which could ultimately hurt its valuation.
Additionally, the company has long maintained that it is merely a technology firm that provides an application for drivers and wanna-be riders to use. Becoming the employer for the drivers would instantly transform Uber and its peers into a livery service.
Similar labor issues have arisen for Uber in other states and in California. Five states have determined that the drivers are independent contractors. California has also done so in 2012, citing that drivers can set their own hours as evidence they are independent contractors.
Many of the on-demand service companies emphasize that they are appealing places to find work because of the flexibility as to when and where they work. Many people are part-time drivers trying to augment their income through multiple businesses.
However, not all decisions have gone Uber’s way in the past. A state agency in Florida ruled earlier this year that the service’s drivers are employees. In the latest California case, the labor commission decided that Uber is “involved in every aspect of the operation” for drivers and riders. Those on the “they are employees” side point out that rideshare services expect their drivers to assume the costs for owning and maintaining a car, which saves the companies tremendous amounts of money and offers an advantage that other transportation services do not have.
The on-demand workforce and list of businesses are growing by leaps and bounds because of the flexibility they offer. As with any new type of business, they have met tremendous resistance from the old guard, regulators and others. Ruling that Uber drivers are employees at a federal level could may make traditional cab drivers and other businesses happy, but it could ultimately hurt the burgeoning sharing economy that has enabled a lot of people laid off by corporate America to make a living.
Written and edited by Dyanne Weiss
TIME: Why the California Ruling on Uber Should Frighten the Sharing Economy
New York Times: California Says Uber Driver Is Employee, Not a Contractor
Reuters: In California, Uber driver is employee, not contractor