TECHNOLOGY

California Says Uber Driver Is Employee, Not a Contractor

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Uber drivers protested working conditions in Santa Monica, Calif., last year. Lucy Nicholson/Reuters 
In what could prove to be a ruling with serious implications for some of Silicon Valley’s fastest-growing technology companies and the work they are creating, the California Labor Commission 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, a former Uber driver, $4,152.20 in expenses and other costs for the eight-week period or so that she worked as a driver for the service 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 Commission cited many instances in which it said Uber acted more like an employer.
The ruling re-ignited a long-simmering debate over whether the work being created by online services and apps like Uber, Lyft and Instacart are the right kinds of work opportunities for both the economy and for workers, and could influence other legal actions over the classification of such workers. The technology companies have contended that their virtual marketplaces, in which people act as independent 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 like Uber, Airbnb 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 everything from on-demand laundry services to on-demand hair primpers.
“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 Labor Commission’s 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 Commisson wrote about Uber. “The reality, however, is that defendants are involved in every aspect of the operation.” The Labor Commission did not respond to requests for comment.
The ruling does not apply beyond Ms. Berwick and may be altered if Uber’s appeal is successful. 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 independent contractors.
Politicians, lawyers and others quickly seized upon the California Labor Commission’s ruling as one that could have major repercussions among some of the fastest-growing Silicon Valley start-ups, of which Uber is the most prominent.
“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. “As many as one-third of American workers are participating in some aspect of the contingent work force, and we have a responsibility to provide clarity and predictability instead of allowing inconsistency and confusion as these issues are litigated on a case-by-case and state-by-state basis.”
Uber faces other legal actions over the status of its workers, including 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 class-action lawsuits on behalf of drivers against Uber, said the Labor Commission’s ruling would be “helpful” to the suits.
“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.”
Other Uber drivers may also be inspired to follow Ms. Berwick’s example, given that filing for costs and expenses through the California Labor Commission is a relatively simple process.
“We’ll see if this starts a trend,” said Wilma B. Liebman, the former chairwoman of the National Labor Relations Board. “I wouldn’t be surprised if there’s a flood of similar kinds of claims.”
Confusion over the status of such workers is set to continue, said Paul Secunda, professor of labor law at Marquette University Law School. “We’re going to see a lot more cases” about workers for Uber, Lyft and others, who are known in legal parlance as 1099 workers, he said. “Competitors like Lyft will also be challenged, to the extent they use independent contractors. Eventually, we’ll emerge in a couple of years, with an answer.”
Uber, co-founded five years ago by Travis Kalanick, who is chief executive, has come to symbolize the worker debate by virtue of its girth. The company, based in San Francisco, has rapidly disrupted entrenched taxi and transportation industries with its model of letting people hail rides from their smartphones. Uber, which has collected billions of dollars in venture capital and is in talks to raise more money at a $50 billion valuation, is now operating in more than 300 cities across six continents.
To meet consumer demand, Uber’s driver ranks have swelled globally. At a presentation this month celebrating Uber’s five-year anniversary, Mr. Kalanick said the company had 26,000 drivers in New York City alone, 15,000 in London, 22,000 in San Francisco, 10,000 in Paris and 20,000 in Chengdu, China.
“Every single month, Uber is adding hundreds of thousands of drivers around the world,” Mr. Kalanick said at the presentation.
Uberhas often run into regulatory hurdles worldwide. In China, local authorities have raided Uber offices in two cities over questions about whether its service is legal because drivers are not licensed. In the United States, cities including Portland, Ore., have claimed that Uber operated an “illegal, unregulated transportation service.” It has also faced protests from cabdrivers.
Ms. Berwick, an entrepreneur who lives in San Francisco, may seem like an unlikely David to the Uber’s Goliath. In the 1980s, she said, she founded Berwick Enterprises, an adult phone entertainment company that is now an independent money manager, for which she said she did online trading as a volunteer.
In a phone interview, Ms. Berwick said that she started driving for Uber last summer because she had grown bored working by herself at her computer. But she quickly took issue with Uber’s policy of classifying the drivers who ferry its ride-hailing app passengers as independent contractors.
“People who drive people are employees,” Ms. Berwick said. “Bus drivers are employees. Paratransit drivers are employees.”
In the course of driving for Uber between July and September 2014, working 60 to 80 hours a week, she said, she earned about $11,000 before expenses and taxes.
“If you work it out, if I didn’t get compensated for expenses, I’d be working for less than minimum wage,” Ms. Berwick said. So she said she decided to file a claim against Uber last September with the California Labor Commission for overtime, expenses and interest, setting in motion the events that led to the ruling.
Correction: June 17, 2015 
An earlier version of this article misstated when the California Labor Commission made its ruling. It was June 3, not in March.
Noam Scheiber contributed reporting.