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California rules that Uber drivers are employees, not contractors

On June 3, the California Labor Commission made a ruling that could ripple through the economy in a number of ways. In the case of a San Francisco-based Uber driver who was seeking about $4,000 in expense reimbursements, the commission ruled that the driver was legally Uber's employee, not an independent contractor.

After Uber appealed on Tuesday, the ruling made national news the decision because its ultimate impact could be enormous if the appeal is successful. Even though the decision was based on California law, it may be part of a nationwide trend.

On the one hand, a federal court in San Francisco ruled earlier this year that the question of whether Uber drivers are employees or contractors was a question for the jury. Also this year, a Florida state agency went further and ruled that Uber drivers are legally employees.

On the other hand, in 2012 the California Labor Commission itself ruled that another Uber driver was in fact a contractor, although reportedly fewer factors were considered in that case. Uber also asserts that agencies or courts in five other states have ruled the drivers contractors, as well. Uber insists it's not an employer at all, but merely the host of a technological platform that matches people needing rides with people willing to drive.

For these purposes, California determines whether someone is legally an employee or an independent contractor using an "economic realities" test. The reason a successful appeal of this case might have a nationwide impact, however, is that the factors in California's test are quite similar to those considered under the federal Fair Labor Standards Act, such as:

  • Whether the work performed is part of the company's core business
  • Whether the worker's managerial skills affect his or her ability to profit from the arrangement
  • Whether the worker has other clients
  • Whether the work requires special skills
  • Whether the worker invested money in tools and supplies required for the work
  • Whether the worker enjoys independent judgment and control over how the work is performed

Employees are entitled to benefits such as overtime pay, workers' comp, Social Security contributions, unemployment insurance, and protection under a variety of state and federal employment and labor laws. If a consensus builds that Uber drivers are employees, the reasoning would apply to Lyft and a variety of other companies that crowd-source services via the Internet.

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