California Labor Commissioner Delivers a blow to the ride Sharing Independent Contractor Concept

The decision to classify workers as independent contractors versus employees can be a costly one, but nevertheless, continues to be a decision many employers make quickly and without regard for the potential risks. In California, the risks are significant, given the extensive Labor Code protections afforded to employees, and the resulting penalties.

Over the course of the past year, lawyers and business people alike have kept a watchful eye on the California courts to see whether further clarification will be offered to properly define an employment relationship. This seems to be popping up more frequently in the context of ride-sharing companies such as Uber, who do not employ drivers, but instead, connect drivers with riders through an app. These individuals are classified, then, as independent contractors.

Though the California Labor Commissioner has held otherwise in a different case, on June 3, 2015, the Commission issued an Award in favor of an Uber driver, finding that she was an employee and that Uber should have reimbursed her for certain business expenses (e.g., mileage). She was accordingly awarded $4,152.20. 

In its decision, the Commission found that the driver was an employee, not an independent contractor because Uber is involved in "every aspect of the operation" in that it vets perspective drivers (who must provide the company their personal banking and residence information) and conducts background and DMV checks. Furthermore, although drivers use their own vehicles, Uber controls the tools the drivers use because they must register their cars with Uber, their cars must not be over 10 years old, and are required to use company provided iPhones and applications. Though Uber argued that it was nothing more than a "neutral technological platform," the Commission found otherwise, stating that the reality of the situation was that Uber really was involved in every aspect of the operation such that an employment relationship had to exist. 

Uber filed a timely appeal to the San Francisco Superior Court, and the Award issued by the Labor Commissioner is not binding precedent; thus, it remains to be seen how this issue will be interpreted going forward. Nonetheless, this is yet another example of California's dislike of the independent contractor model. Companies should be very careful when classifying any individual as an independent contractor. Such arrangements should be left to situations where companies hire other companies to perform work which is not integral to its business operations and where there is little to no control over the duties of the worker. Other than those situations, employers should err on the side of caution and classify workers as employees.

If you have questions about Berwick v. Uber Technologies Inc. No. CGC-15-546378 (Cal. Super. Ct. June 16, 2015) or the underlying Award, please contact Sean N. Pon.