Experts Say Ruling Could Affect Labor Status At Similar Sharing Economy Companies
On Wednesday, a decision by California’s Labor Commission came to light in a case that could potentially affect employee classifications at businesses across the US. The Commission found that San Francisco Uber driver Barbara Berwick is in fact an employee, not a contractor, as Uber had argued. The court found Berwick was owed more than $4,100 in reimbursement for driving expenses. The New York Times reports in a front-page story that the potentially “precedent-setting ruling,” was made in March, but “came to light after Uber filed an appeal on Tuesday evening.”
Much discussion in the case focused on how the ruling could affect Uber’s business model. According to Business Insider the ruling “could significantly raise [Uber’s] costs” by requiring the company to “withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid,” as well as providing employee benefits, including healthcare. Further, a decision in favor of the drivers could set a precedent applicable to the entire 1099 economy by significantly increasing labor costs. The Los Angeles Times notes Thilo Koslowski, automotive practice leader at technology research firm Gartner, thinks Uber may be able to “find a compromise that would allow drivers who work a certain number of hours, for example, to be classified as employees, but leave others working as part-time contractors.” Sunil Rajaraman, cofounder of Scripted.com, writes in an article on Venture Beat that a decision in favor of drivers would make Uber’s “customer economics and operating margins a lot less attractive,” which, though Rajaraman believes that “Uber will win its appeal,” could “domino across the on-demand economy.”
What Happens Next
The Wall Street Journal notes that the Commission’s ruling is non-binding, and Uber is planning an appeal. The case’s long-term implications are a bit unclear, as the Journal notes a 2012 decision from the same Commission ruled an Uber driver was an independent contractor, not an employee. For now, the classification of Uber drivers remains uncertain.
What This Means For Small Businesses
This case is troubling for small business owners in San Francisco and across the US because it threatens to blur the lines between employees and independent contractors. Many small businesses rely on contract labor, and the regulatory uncertainty makes it harder to fill unmet labor needs.
Additional Reading
Investors Business Daily and AFP also cover the ruling. Business Insider contributor Shane Ferro argues that Uber drivers in California should “organize.” BuzzFeed reports on the growth of the “on-demand” economy, as does Forbes contributor Cyril Bouquet. NFIB has previously covered attempts to regulate Uber.
