Why Making Uber’s Drivers Employees Has An Impact On Other Small Businesses

In an article that Philip Mortensen wrote earlier this month for The Connector magazine (pages 34-35), he urged that it is imperative that employers review their worker classifications before state and federal agencies come knocking down doors or worse, long and costly litigation ensues. However, in this regard it seems that Uber has hit a legal setback that, as Inc. magazine describes it, “casts a long shadow over the on-demand economy.”

On June 3, the California labor commissioner ruled that an Uber driver is indeed an employee, not an independent contractor.  In that opinion, it was felt that Uber exercised substantial control over its drivers – similar to that typically exercised by other employers.  The labor commissioner seemed unimpressed that the drivers provided their own vehicles, worked at their discretion, and could reject assignments.  Not surprisingly, Uber has appealed.

In other states, Uber has faced similar attacks and, in most cases has prevailed (one notable exception was in Florida and, like in California, that case too is on appeal). However, the California ruling brings forth a host of questions for the classifications of workers in an era of new-age technology and on-demand services and the effects may be felt even more significantly by startups.  These new entities may not be able to afford the additional costs of “employees” (e.g., payroll taxes, benefits, etc.), and might be crippled by possible ensuing litigation.

For these startups and even companies of a larger caliber, assessing classifications can be tricky, but should ultimately begin with a proactive labor audit to determine whether every worker is properly classified. Deferring review now may mean you spend much more time and money down the road.

For more information on worker classifications or other labor and employment questions and concerns, please contact Philip Mortensen.