CA Labor Commission Orders Uber to Reclassify Contractor

The popular app-based transportation company, Uber, is facing more legal issues as multiple California wage and hour lawsuits have been filed by drivers alleging that they should be classified as employees entitled to related benefits and protections under federal and state labor laws, which they don’t get as independent contractors.

Unlike a traditional taxi company, Uber drivers are classified by the company as independent contractors and not employees. However, in one such recent California employee rights case the California Labor Commissioner’s Office said that a driver for the ride-hailing service should be classified as an employee, not an independent contractor.

The California labor ruling ordered Uber to reimburse Plaintiff Barbara B. $4,152.20 in expenses and other costs for the roughly eight weeks she worked as an Uber driver.

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 office cited many instances in which it said Uber acted more like an employer.

Uber is appealing this ruling in court, but it already faces a California wage and hour class action lawsuit over the same employee classification issue in federal court and similar employee wage and hour class action lawsuits in Florida and Massachusetts.

It is important to note that this California Labor Board ruling does not set a legal precedent in the same way that a court ruling does — it only applies to the employment class action lawsuit brought forth by Barbara B.

However, the California labor ruling could bolster employee classification class action lawsuits against the company in the state. California labor laws expressly requires employers to reimburse employees for business expenses and several California employee rights lawsuits proceeding against Uber, based on that California labor law.

CA Labor Laws: Employee v. Independent Contractor

The proper classification of workers as employees or independent contractors is not a new concern for many California employers. Unlike employees, independent contractors are not subject to a variety of employment laws, including California wage and hour laws, anti-discrimination laws, and unemployment and workers compensation requirements.

The misclassification of employees as an independent contractors, however, can carry steep fines and penalties under federal and California labor laws, as well as claims for unpaid wages and benefits by the misclassified employees.

For a company like Uber, employee misclassification also may have a significant impact on its business model moving forward, particularly if the company (and similar companies) is required to undertake greater overhead expenses and assume greater risks in offering services to the public.

Cost of Reclassifying Workers

Companies like Uber, and its rival Lyft, in which people act as independent contractors and use their own assets to provide services to the public afford workers flexibility that a traditional employee doesn’t have.

Uber’s drivers are currently 1099 contract workers. Uber pays no taxes on its wages. But if its drivers were employees, Uber would have to pay state and federal taxes for unemployment, disability, Social Security and Medicare. For example, if a California-based Uber driver was making $50,000 a year, Uber would have to that pay $4,940 in taxes annually per driver.

It has been suggested from calculations that a forced nationwide reclassification of Uber drivers as employees would cost Uber nearly $1 billion per year to treat all of its U.S. drivers as employees.

Employee Misclassification Lawsuits

When companies misclassify their workers as independent contractors, these employees are often deprived of many benefits including overtime pay, vacation pay, health insurance, employer-sponsored retirement plans, and expense reimbursements. Misclassified employees also do not receive unemployment and workers’ compensation benefits.

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