A California Labor Commission ruling recently declared that an Uber driver is an employee, not an independent contractor, a decision that could eventually increase costs for the smartphone app-powered start-up and disrupt its budding same-day delivery service.
The June 3 judgement, which became public Tuesday when Uber filed an appeal in a state court in San Francisco, applies only in California and to one driver, but if upheld it could set a broad precedent that could lead to higher costs for the company, including drivers’ health care benefits and gas.
Currently, Uber drivers are considered independent contractors, taking an 80 percent cut of fares but covering their own costs and paying their own taxes. But the commission stated several instances of control that Uber maintains over the drivers as evidence that the drivers are treated as employees.
“Defendants hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation,” the ruling reads. “The reality, however, is that defendants are involved in every aspect of the operation.”
Uber said in a statement that officials in five other states have found that its drivers are independent contractors and that the majority of drivers “can and do choose to earn their living from multiple sources, including other ride-sharing companies.”
With that being said, the California ruling was not the first time the company has come under fire for its definition of the term “independent contractor.” Earlier this year, the U.S. District Court rejected Uber’s bid to classify its drivers as such, saying a jury would rule on their status. Meanwhile, in Florida, a state agency ruled that Uber drivers are employees.
While the decision is under appeal, if it’s sustained it could hurt the start-up’s $40 billion-plus valuation and pose a potential risk for other crowdsourced services, such as rival ride-calling app Lyft, same-day delivery company Deliv and chore service TaskRabbit. Not to mention Uber’s own same-day delivery pilot that relies on Uber Rush bike couriers and Uber car drivers to drop off packages from participating brands in less than three hours. It could also convince online behemoth Amazon to pull the plug on its latest attempt at disrupting traditional delivery services: a mobile app dubbed “On My Way” that would enlist ordinary people to pick up and drop off packages as they go about their day.
“This ruling basically means that [the price of] same-day delivery is going to go through the roof,” David Bozin, vice president of growth development at retail platform start-up Bindo, told Retail Dive. “Yet on-demand has become a normal thing—consumers are used to it. There need to be a mix between getting more creative and updating the business model. Everyone will have to get smarter about deliveries.”