Popular ride-hailing service Uber may have its business model turned upside as the California Labor Commission ruled that in accordance with the Fair Labor Standards Act (FLSA), at least one Uber driver, Barbara Ann Berwick, must be classified as an employee, not an independent contractor.
In order to avoid paying benefits and overtime-related expenses by treating its drivers as actual Uber employees, Uber’s business model has opted to classify the drivers as “independent contractors,” despite the company’s crucial dependence on the drivers. In defense of this business model, Uber has long stated that it only operates as a software company in charge of handling the logistics behind matching drivers with riders.
However, the California Labor Commission’s decision defined Uber as, “involved in every aspect of the operation.” Berwick was awarded $4,152.20 in employee expenditures, such as mileage reimbursements, toll charges and even interest.
Shannon Liss-Riordan, the attorney currently working on a class action FLSA lawsuit against Uber on behalf of disgruntled drivers, believes the company’s success is determined by its drivers:
“Uber’s obviously been wildly successful because it developed a concept that caught on,” Liss-Riordan said. “But that gives it no excuse to ignore labor laws that have been put into place over decades that protect workers’ rights. Uber is a $50 billion company, it says. And the idea that it somehow can’t afford to pay for what employers are required to pay for is just a little bit beyond belief.”
In response to the California Labor Commision’s ruling, Uber has filed an appeal, claiming its business model only replicates that of other successful startups. The company’s biggest fear now is whether or not the other roughly 160,000 active U.S. drivers will follow suit. Considering Uber’s data shows that nearly 30 percent of its drivers work what could be considered full-time hours, complying with the FLSA’s standards may put the service in hot water.
“It’s important to remember that the No. 1 reason drivers choose to use Uber is because they have complete flexibility and control,” Uber spokeswoman Jessica Santillo said. “The majority of them can and do choose to earn their living from multiple sources, including other ride-sharing companies.”
University of Southern California law professor Jonathan Handel believes the company may be in over its head in future FLSA litigation regarding the misclassification of its drivers:
“Uber should be worried about this. It really could represent a major roadblock for the sharing economy model that Uber and other companies like Lyft and Airbnb, even, are dependent on,” Handel said. “If not a surprise, it certainly illustrates the tension between a new economy model, where Uber and others say, ‘look, we’re just information providers; we hook people up,’ and an older model.”
U.S District Judge Edward Chen also weighed on the FLSA lawsuit ruling, stating, “The idea that Uber is simply a software platform, I don’t find that a very persuasive argument.”
Last week, California saw another decisive FLSA lawsuit settled regarding employee misclassification at FedEx. More than 2,000 delivery drivers, improperly labeled as independent contractors, were involved in a class action resulting in the creation of a $228 million fund to compensate the misclassified California drivers.