In a much-anticipated decision, that could become precedent setting, the California Labor Commission ruled that an Uber driver is an employee — not an independent contractor, as Uber claimed.
This decision, which contradicted five other state rulings, could significantly impact Uber’s business model, as the company maintains it is an app, not a car service. That distinction allowed Uber to treat drivers as contractors because the Company did nothing more than provide a neutral technological platform, designed simply to enable drivers and passengers to transact business.
In the findings of fact, the Board compared Uber?s contract drivers to pizza delivery drivers stating that “A person making pizza deliveries was held to be an employee of the pizzeria, notwithstanding the fact that the delivery person was required to provide his own car and pay for gasoline and insurance.” Further, the Board determined that Uber?s contract drivers are involved in every aspect of the operation, highlighting that “without drivers such as Plaintiff, Defendants’ business would not exist”.
In light of its determination, the Board ordered Uber to pay the plaintiff driver $4,152. While that amount is clearly but a drop in a very large bucket for Uber financially, the holding would effectively require Uber to fundamentally alter the way it conducts business, at least in California, its home state. Given the significant importance the case has, Uber immediately filed a notice of appeal with the Superior Court of the State of California.
Those of us who routinely counsel clients on the importance of understanding the distinction between Independent Contractor and Employee status, have closely monitored this case for many reasons but mostly because the Uber novel business model and ?platform? brought to bear novel facts and therefore arguments to make on the question of what distinguishes a contractor from an employee. It is important to remember that this decision is on appeal and therefore is not ?final? and likely will not be ?final? for some time. That said, we continue to encourage businesses that rely on contractors to be proactive in managing risk presented by such reliance.
SMART Tip: Beyond ensuring that your independent contractor agreements are updated in light of the most recent developments in this area, it is also important to ensure that your processes are aligned with your characterization.