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Uber just lost a labor commission suit in California

June 17, 2015, 2:58 PM UTC

The California Labor Commission has ruled that an Uber driver for the company should be classified as an employee rather than as an independent contractor, which, if applied broadly, would alter the company’s business model.

The decision could pave the way for new costs to the company. Right now, as Business Insider notes, Uber faces virtually no expenses for the more than one million drivers who give rides using the service. If the ruling holds, though, all of those people could potentially be classified as employees of the company, and that exposes Uber to such costs as Social Security, workers’ compensation, and unemployment insurance. That would be a huge expense for Uber and threaten its entire business model.

It could also affect its valuation, currently above $40 billion, and the valuation of other companies that rely on large networks of individuals to provide rides, clean houses and other services.

Uber has argued its drivers are independent contractors, not employees, and that it is “nothing more than a neutral technology platform.”

Following the ruling, Uber issued a statement saying that the decision only applied to one driver, and that the same Commission had previously ruled that Uber drivers were not employees. The company also noted other states have concluded that drivers are not employees.

“It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control,” the statement read. “The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.”

The commission was ruling on an appeal by Uber of a labor commissioner’s award of about $4,000 in expenses to San Francisco-based driver Barbara Ann Berwick, who filed her claim in September. She worked as an Uber driver for just over two months last year.

Earlier this month, Uber lost a bid to force arbitration in a federal lawsuit brought in San Francisco by its drivers. Earlier this year, the same court rejected Uber’s bid to deem its drivers independent contractors, saying a jury would rule on their status.

The five-year-old car startup is now valued at $41.6 billion, according to Fortune’s Unicorn List, and is reportedly raising a new round that could bring its valuation to an eye-popping $50 billion.
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—Reuters contributed to this report.