The Beginning Of The End For Uber?

One of the reasons that Uber has been so successful so quickly is its uber low overhead. (What? You don’t like puns?) Uber classifies their legion of drivers as independent contractors, which frees Uber from the myriad of obligations employers owe employees.

Uber received a harsh ruling from the California labor commission yesterday, which strikes at the heart of the upstart taxi service’s business model. In a case involving a former Uber driver, Barbara Ann Berwick, the commission held that, under California law, this Uber driver was an employee. Business Insider reports on the impact of the ruling:

Right now, Uber has hardly any costs other than its 1,000+ employees in its San Francisco headquarters. Uber takes a percentage of every ride (20-30%). It doesn’t employ drivers, it merely connects supply (user requests on its app) with demand (independent contract drivers who are roaming around and have agreed to partner with Uber).

If this ruling sticks, Uber won’t just be a logistics company printing money, at least in California. The cost to run the business there would skyrocket. Uber would have to seriously consider downsizing the number of drivers it has as partners and provide benefits for them all.

Employees are expensive; companies have to pay social security and medicare taxes for each employee among other things, according to the IRS. They don’t have to do any of that for independent contractors. Also, drivers currently have to cover a lot of their expenses — such as gas, car maintenance and insurance — themselves, although Uber has begun to offer perks to offset some of these costs.

How Legal Intelligence Is Bringing In A New Era Of Litigation For Plaintiff Firms

Darrow is building a new category of legal intelligence — one that helps firms understand complex legal landscapes earlier, more clearly, and with greater confidence.

By Brittany Cianflone

I know lawyers have gotten used to the convenience of Uber, but before anyone gets too upset it is important to note the ruling applies only to Uber’s California drivers (though that is Uber’s largest market), and that Uber has promised to appeal.

Uber has made the following statement to TechCrunch:

Reuters’ original headline was not accurate. The California Labor Commission’s ruling is non-binding and applies to a single driver. 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.’ Five other states have also come to the same conclusion. 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.

So no need to battle the horrors of public transportation quite yet.