In the latest chapter of employers’ struggles to properly classify employees and independent contractors, the California Labor Commissioner recently ruled that an Uber driver was an employee and not an independent contractor.  Uber, a mobile app which allows customers to request a ride and pay via their mobile device, has been able to avoid many employment laws by classifying its drivers as independent contractors rather than employees.  Uber is now battling a multitude of employee misclassification lawsuits throughout the country.

Uber, and others like it in the new sharing economy, argued that its company is simply a neutral platform designed to enable drivers and passengers to transact the business of transport.  Uber drivers use their own vehicles, set their own hours, and carry their own insurance policies.  The Commissioner, however, found that Uber was “involved in every aspect of the transportation.”  Uber drivers are required to provide their personal banking, residence information, and Social Security Numbers; to pass background and DMV checks; and to use vehicles that are less than 10 years old and registered with Uber.  The Commissioner found that “

[b]y obtaining clients in need of the service and providing the workers to conduct it, [Uber] retained all necessary control over the operation as a whole.”  The Commissioner found that because “Uber is involved in every aspect of the operation,” the driver was an employee and not an independent contractor.

While Uber is appealing this decision and claims that it conflicts with a 2012 ruling, this could be an expensive misclassification for Uber. Ultimately, Uber could be required to reimburse its “employees” for gas, tolls, and insurance if its appeals are unsuccessful.  In addition, Uber could be required to expend substantial costs to comply with other employment laws, such as requirements for unemployment insurance, overtime compensation, workers’ compensation, Social Security and other benefits, and the penalties associated with failing to comply with these laws in the first place.  Uber’s legal battle reminds us of the risks posed by the misclassification of workers as independent contractors.  Please talk to one of our employment attorneys if you have any questions as to whether your workers are properly classified.

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DISCLAIMER:  This advisory is one of a series of business, real estate, employment and tax advisories prepared by the attorneys at Fauver, Large, Archbald & Spray, LLP. This advisory is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution of this legal advisory.