California workers 1, Uber 0. (This time, anyway.)
The well-funded transportation startup (and Fortune Unicorn List fixture) lost another legal round in the dispute over whether its drivers are independent contractors—1099s, as they’re known, after the related IRS form—or employees, known as W-2s.
The California Employment Development Department, or EDD, has determined that a former Uber driver in Southern California was an employee, rather than an independent contractor. The decision was upheld in appeals and is the third such ruling against Uber since May. It’s also the first to be appealed, let alone be denied on appeal. Whether it sets an informal precedent for future rulings remains to be seen.
“This decision applies to one person. It does not have any wider impact or set any formal or binding precedent,” an Uber spokesperson tells Fortune. “Many public bodies have found that individual driver partners are independent contractors, including unemployment and labor departments in Indiana, Georgia, Pennsylvania, Colorado, Texas, Illinois, New York, and California.”
The issue strikes at the core of the company’s business model. Uber positions itself as a software provider that helps independent parties—drivers and passengers—unite. If those drivers are not considered independent contractors, Uber would have to pay taxes for hundreds of thousands of new employees (and make various new considerations: benefits, unemployment, and so forth) at a time when it is believed to be deeply unprofitable in its quest for growth.
To date, eight U.S. states have issued rulings that classify Uber drivers as independent contractors: California, Colorado, Georgia, Illinois, Indiana, New York, Pennsylvania, and Texas.
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