Uber Hits a Speed Bump in California: Labor Commissioner Rules Driver is an Employee

On June 16, 2015, smartphone-based ride hailing service Uber Technologies, Inc. appealed a June 3, 2015 order by the California Labor Commissioner holding that former Uber driver Barbara Ann Berwick was an Uber employee rather than an independent contractor. The Labor Commissioner ordered Uber to reimburse Berwick $4,152.20 in business expenses she incurred in fuel and tolls during the eight weeks she worked as an Uber driver. While this amount may seem like pennies to a company valued at more than $40 billion, the ruling poses a threat to Uber’s business model and that of many technology startups in the burgeoning sharing economy, which rely heavily on workers being classified as independent contractors.

Uber has long identified itself as a technological platform—a smartphone application used by independent vehicle drivers and passengers to facilitate private transactions. It has argued that it exerts no control over its drivers’ hours and drivers are not required to complete a minimum number of trips. Uber’s drivers have the freedom and flexibility to use their own vehicles if and when they want, are responsible for maintaining and fueling their own vehicles, and are free to make a living from multiple sources. Uber has always classified its drivers as independent contractors, thus avoiding the costs of complying with statutory and other protections provided to employees.

The Berwick Decision

The California Labor Commissioner disagreed with Uber, ruling that Berwick was Uber’s employee, not an independent contractor. In making her determination, the hearing officer applied the test for independent contractor status established by the California Supreme Court in S.G. Borello & Sons, Inc. v. Dept. of Indus. Relations, 48 Cal.3d 341 (1989). The Borello test considers factors such as:

• Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
• Whether or not the work is a part of the regular business of the principal or alleged employer;
• Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
• The alleged employer’s investment in the equipment or other materials required by his or her task of his or her employment of helpers;
• Whether the service rendered requires a special skill;
• The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
• The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
• The length of time for which the services are to be performed;
• The degree of permanence of the working relationship;
• The method of payment, whether by time or by the job; and
• Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question but is not determinative since this is a question of law based on objective tests.

The hearing officer noted that although Uber exercised very little control over Berwick’s activities, it was not necessary under Borello that the principal exercise complete control over a worker’s activities in order for the worker to be an employee—the principal need only exercise necessary control. The hearing officer held that by obtaining the passengers in need of the ride service and providing the drivers to conduct the service, Uber retained all necessary control over the operation as a whole.

The hearing officer gave little weight to the fact that Berwick made her own hours, used her own vehicle to transport passengers, and paid for her own fuel and vehicle maintenance. Rather, the hearing officer held that employment should be found when the work being done is an integral part of the regular business of the employer and when the worker, relative to the employer, does not furnish an independent business or professional service. The hearing officer then determined that Berwick’s work was integral to Uber’s business because Uber was in business to provide transportation services to passengers and Berwick did the actual transporting of the passengers. Without drivers such as Berwick, the hearing officer reasoned, Uber’s business would not exist.

The hearing officer also determined that although Uber held itself out as nothing more than a neutral technological platform, it was involved in “every aspect” of the operation—from vetting prospective drivers who must provide personal information and pass background and DMV checks, to controlling the tools drivers use by requiring drivers to register their vehicles, which must be no more than ten years old. Uber provides its drivers with the smartphone app that is essential to the performance of the work, and only approved drivers are permitted to use it. Uber also monitors drivers’ approval ratings and terminates their access to the application if their ratings fall below a certain level or they are inactive for more than 180 days. In addition, drivers are discouraged from accepting tips and cannot negotiate their own fees.

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