California Court Ruling Rattles 'Uber’: Says Driver Is An Employee Not A Contractor

The ruling by California Labour Commission binding the apps based taxi provider Uber has put the start up in a quandary, with its business model coming under stress, as a result of escalating costs. The core of the ruling is that a driver in Uber must be treated as an employee and not as a contractor unlike what the company has been describing. Uber is one of the succesful start-up companies, present in more than 50 countries and has an estimated worth of $50 billion.

The ruling pertained to a case where the court directed Uber to pay more than $4,000 as expenses to the San Francisco ex Uber driver, Barbara Ann Berwick. The ruling said the money will be Berwick's "reimbursable business expenses" and will cover tolls, parking fees, legal fees, interest and mileage. It apparently jolted Uber with a cost spiral staring at its face as the Commission wanted Uber to pay the driver's expenses incurred during her period of work, reports BBC.

Driver As Contractor

Uber has a stated policy that deems drivers as independent contractors, who have to bear the cots of their own cars, insurance, gas, toll and other general operating costs. In return, the drivers will get paid 80 percent of the fare.

The ruling, while dismissing Uber’s business model said the company is not seen as a mere enabler of the service between drivers and passengers, rather it fully “involved in every aspect of the operation.” It noted that Uber’s existence is linked to drivers like Berwick. The ruling, thus, squarely botched Uber's claim that it is a “software platform” that simply "matches customer demand with supply.”

Matter Of Costs

For Uber, if the ruling is applied everywhere it operates, there will be the burden of huge extra costs in terms of payment towards social security and unemployment insurance. But Uber is taking comfort that the ruling is just limited to the driver mentioned in the dispute. It also released a statement, claiming that a previous ruling in California and five other rulings in other U.S states had concurred with its business model of treating drivers as contractors.

Flexibility In Operation

“It's important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. A majority of them can choose to earn their living from multiple sources, including other ride sharing companies,” the statement said. Uber has more than a million drivers. Now the immediate challenge before Uber is to reverse the ruling and avoid the escalation of costs.

(For feedback/comments, contact the writer at k.kumar@ibtimes.com.au)