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Uber Ruling Fuels Debate Over Workers

Uber Ruling Fuels Debate Over Workers

By Mike Isaac and Natasha Singer, The New York Times | Updated: 18 June 2015 09:49 IST

In a ruling that fuels a long-simmering debate over some of Silicon Valley's fastest-growing technology companies and the work they are creating, the California Labor Commission said that a driver for the ride-hailing service Uber should be classified as an employee, not an independent contractor.

The ruling ordered Uber to reimburse Barbara Ann Berwick $4,152.20 (roughly Rs. 2.6 lakhs) in expenses and other costs for the roughly eight weeks she worked as an Uber driver last year. While Uber has long positioned itself as merely an app that connects drivers and passengers - with no control over the hours its drivers work - the labor commission cited many instances in which it said Uber acted more like an employer. Uber is appealing the decision.

The ruling does not apply beyond Berwick and could be altered if Uber's appeal succeeds. Uber has also prevailed in at least five other states in keeping its definition of drivers as independent contractors. Yet the California ruling stands out because commission officials formally laid out their arguments for why Uber drivers are employees. That could bolster class-action lawsuits against the company in the state. California law expressly requires employers to reimburse employees for business expenses and several suits proceeding against Uber are based on that state law.

Companies like Uber and its rival Lyft, and Instacart, a grocery delivery service, have long faced questions about whether they are creating the right kind of employment opportunities for both the economy and for workers. The technology companies have contended that their virtual marketplaces, in which people act as contractors and use their own possessions to provide services to the public at the touch of a smartphone button, afford workers flexibility and freedom.

Yet labor activists and others have said such roles - with people working as freelancers and having little certainty over their wages and job status - are simply a way for companies like Uber to minimize costs, even as they maintain considerable control over drivers' workplace behavior. They say that such control is typically the hallmark of an employee relationship, which should bring with it benefits, more stable pay and greater job security.

The classification of freelancers is in dispute across a number of industries, including at other transportation companies. And the debate is set to escalate as the number of online companies and apps like Uber and others rises. Venture capitalists have poured more than $9.4 billion (roughly Rs. 60,068 crores) into such startups - known as on-demand companies - since 2010, according to data from CB Insights, a venture capital analysis firm, spawning things like on-demand laundry services and hair stylists.

"For anybody who has to pay the bills and has a family, having no labor protections and no job security is at best a mixed blessing," said Robert Reich, former secretary of labor and a professor of public policy at the University of California, Berkeley. "At worst, it is a nightmare. Obviously some workers prefer to be independent contractors - but mostly they take these jobs because they cannot find better ones."

The California Labor Commission's ruling, which was made June 3 and came to light after Uber filed an appeal Tuesday evening, noted that the company provided drivers with phones and had a policy of deactivating its app if drivers were inactive for 180 days.

"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 labor commission wrote about Uber. "The reality, however, is that defendants are involved in every aspect of the operation." The labor commission did not respond to requests for comment.

In a statement, Uber said the decision was "nonbinding and applies to a single driver." The company said individual cases about worker classification in at least five other states, including Georgia, Pennsylvania and Texas, have resulted in rulings that categorize drivers as contractors.

In May, authorities in Florida also said a former Uber driver should be classified as an employee to claim unemployment benefits, a decision Uber is appealing.

Yet politicians, lawyers and others quickly seized upon the California Labor Commission's ruling as one that could have more repercussions for Uber and other similar companies.

"Today's ruling from the California labor regulators demonstrates why federal policymakers need to re-examine the 20th-century definitions and employment classification we're attempting to apply to a 21st-century workforce," said Sen. Mark R. Warner, D-Va.

In California, Uber faces class-action lawsuits from drivers saying they were misclassified as independent contractors. Shannon Liss-Riordan, a Boston-based employee and labor rights lawyer who is involved in the lawsuits on behalf of drivers against Uber, said the commission's ruling would be "helpful" to the suits, which argue drivers should be reimbursed for expenses.

"This is a very big deal," she said. "Uber has been fighting very hard against any decisions like this coming out, and when a fact-finder sat down and looked at the situation, they determined that Uber is an employer."

Other Uber drivers may also be inspired to follow Berwick's example, given that filing a claim with the California Labor Commission is a relatively simple process.

"We'll see if this starts a trend," said Wilma B. Liebman, the former chairwoman of the National Labor Relations Board. "I wouldn't be surprised if there's a flood of similar kinds of claims."

Uber, co-founded five years ago by Travis Kalanick, who is its chief executive, has come to symbolize the worker debate by virtue of its scale. The company, based in San Francisco, has rapidly upended entrenched taxi and transportation industries with its model of letting people hail rides via their smartphones. Uber, which has collected billions of dollars in venture capital and is in talks to raise more money at a $50 billion valuation, is now operating in more than 300 cities across six continents.

To meet consumer demand, Uber's driver ranks have swelled. At a presentation this month celebrating Uber's fifth anniversary, Kalanick said the company had 26,000 drivers in New York City alone; 15,000 in London; 22,000 in San Francisco; 10,000 in Paris; and 20,000 in Chengdu, China.

"Every single month, Uber is adding hundreds of thousands of drivers around the world," Kalanick said.

Uber has run into regulatory hurdles worldwide. In China, local authorities have raided Uber offices in two cities over questions about whether its service is legal because drivers are not licensed. In the United States, cities including Portland, Oregon, have claimed that Uber operated an "illegal, unregulated transportation service." It has also faced protests from cabdrivers.

Berwick, who lives in San Francisco, may seem like an unlikely David to the Uber Goliath. In the 1980s, she said, she founded Berwick Enterprises, a phone sex-entertainment company that is now an independent money manager, for which she said she did online trading as a volunteer. (The website of the company she started offers to trade on behalf of clients; neither Berwick nor the firm is registered as an investment adviser with the Securities and Exchange Commission or the Financial Industry Regulatory Authority.)

In a phone interview, Berwick said she started driving for Uber last summer because she had grown bored working by herself at her computer. But she quickly took issue with Uber's policy of classifying drivers as independent contractors.

"People who drive people are employees," Berwick said. "Bus drivers are employees. Paratransit drivers are employees."

In the course of driving for Uber from July to September 2014, working 60 to 80 hours a week, she said, she earned about $11,000 (roughly Rs. 6 lakhs) before expenses and taxes.

"If you work it out, if I didn't get compensated for expenses, I'd be working for less than minimum wage," Berwick said. So she said she decided to file a claim against Uber last September with the California Labor Commission, setting in motion the events that led to the ruling.

Berwick has a history of being litigious. Since 1991, she and her company have filed at least 20 lawsuits in California. In one case, she sued an employee of a pizza parlor for $500 in damages for leaving restaurant menus on her gate. She was not awarded any damages.

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