California says Uber drivers are employees

The California labor commissioner’s ruling that an Uber Technologies Inc. driver must be treated as an employee may have repercussions throughout the on-demand economy.

If upheld on appeal, the decision might not only upend Uber’s business model but also throw into question other companies that rely on freelance workers. Employees, but not independent contractors, typically are entitled to minimum wage in addition to benefits like health insurance.

The labor commissioner based the decision on the company’s involvement in the driver’s operations and its rules dictating such things as how old a car can be and who’s qualified to drive.

Each state has its own labor standards, but “it’s like a Venn diagram, where 90 percent of the provisions overlap,” Jeffrey London, an employment partner at Kaye Scholer LLP, said in an interview Wednesday. Many could see rulings similar to California’s.

In May, for example, the Florida Department of Economic Opportunity ruled that a former Uber driver was an employee of the company rather than a contractor in a case over unemployment insurance.

In Illinois, where London practices, the state uses a three-part test, he said. Under those rules, a driver is likely to be considered an employee as well, he explained.

Uber spokeswoman Kristin Carvell said in a statement that the decision applied to a single driver and contradicted previous rulings. Five other states have concluded that drivers are independent contractors, she said. The company, recently valued at as much as $50 billion, is represented by Andrew Spurchise of Littler Mendelson PC. It said in court papers it would appeal the decision.

It’s not just startups that test the boundaries. FedEx Ground Package System Inc. agreed to pay a $228 million settlement to 2,300 California drivers who said they were misclassified as independent contractors, according to a June 12 filing with the U.S. Securities and Exchange Commission.

In March, Fancy Hands Inc., an online personal assistant service that uses independent contractors, was sued by plaintiffs claiming they weren’t paid minimum wage or overtime. The company didn’t respond to an e-mail seeking comment on the suit, and Kathleen McLeod Caminiti, the lawyer listed in the docket, didn’t immediately return a call seeking comment.

Employee status has vexed the tech industry for years. In 2000, Microsoft Corp. agreed to pay $97 million to settle an eight-year-old lawsuit brought by temporary workers who were denied full benefits.

The ruling involving Uber, filed in San Francisco state court Tuesday, stemmed from a dispute with a former driver. Uber said the driver wasn’t entitled to claimed wages or expense reimbursement. The commissioner disagreed.

“The 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 commissioner said in the decision, filed alongside Uber’s appeal notice. “The reality, however, is that defendants are involved in every aspect of the operation.”

There are other federal lawsuits pending against Uber and its competitor Lyft. In March, judges refused to dismiss the cases saying juries should decide the cases.

With urging from the taxi industry and labor unions, California lawmakers have been working to regulate ridesharing companies. Last year, lawmakers required drivers to carry at least $1 million in insurance for personal injury and property damage. The law, which was opposed by Uber, takes effect July 1.

The uncertainty could cause these or other companies that rely on independent contractors to revisit essential assumptions.

“If enough states say that drivers or other on-demand workers are employees, not independent contractors, you will likely have to reassess whether you need to remodel your business,” London said.

The state court filing is Uber Technologies Inc. v. Berwick, 15-546378, Superior Court of California, County of San Francisco. The federal cases are Cotter v. Lyft Inc., 13-CV-04065, and O’Connor v. Uber Technologies Inc., 13-CV-03826, U.S. District Court, Northern District of California (San Francisco).