Updated:
In a potential blow to Uber s low cost ride-sharing business model, the labor commission in California has ruled that an Uber driver is an employee of the company, but Uber said Wednesday that the ruling is non-binding and applies only to one driver.
The state labor commission issued the ruling earlier this month and this week filed the decision with San Francisco County Superior Court, according to public records.
Uber holds itself out as nothing more than a neutral technology platform, designed simply to enable drivers and passengers to transact the business of transportation, the state labor commission stated in its ruling. The reality, however, is that Uber is involved in every aspect of the operation.
For example, according to the ruling, Uber vets prospective drivers, who must provide Uber with personal banking information and residence information. Drivers also must provide social security numbers. Drivers are not allowed to use Uber s technology unless they pass background checks from Uber and the Department of Motor Vehicles.
The decision was filed in a case involving Uber driver Barbara Berwick.
Plaintiff was defendants employee, the state labor commission ruled.
Uber disagreed with the implications of the ruling.
The California Labor Commission s ruling is non-binding and applies to a single driver, Uber said in a prepared release. 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.
Ultimately, if all drivers for Uber are deemed to be employees, that changed status opens up Uber to higher expenses on an array of labor-related items. The company would have to pay social security costs, workers compensation and unemployment insurance expenditures.
What s more, the higher overhead could undermine Uber s valuation. The privately held company currently is valued at $40 billion.
It s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control, Uber said. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.
The California ruling is not the first decision of its kind. Heather Somerville wrote last month that the Florida Department of Economic Opportunity decided that a fired Uber driver was eligible for unemployment benefits because it considered him an employee, not a contractor.
Photo outside Uber s San Francisco headquarters by Karl Mondon/Bay Area News Group