California Scrutinizes Independent Contractors in the Sharing Economy

A California Labor Commission (Commission) ruling related to a single Uber driver in California may have massive repercussions for the rapidly expanding San Francisco-based company. A former Uber driver claimed she was an employee and entitled to reimbursement of work-related expenses for gas and tolls. Uber argued it is merely a technological platform that allows passengers to connect with drivers who are independent contractors. Uber claimed it does not control when or where drivers work and that many of its drivers perform work using other platforms, such as Lyft or Taskrabbit.

The Commission found that Uber drivers are more like pizza-delivery drivers and that the company is involved in “every aspect of the operation.” The Commission noted Uber requires drivers to use a vehicle that is less than 10 years old, prohibits drivers from receiving tips, performs background checks on drivers, and terminates poorly rated drivers. The Commission found that without drivers, Uber’s business “would not exist.”

While the Commission’s decision has no binding effect on other employers, Uber and its competitor, Lyft, are both currently fighting class-action lawsuits from their drivers in California.  These cases should remind employers that independent contractor relationships are subject to strict scrutiny from state and federal agencies.