Ride-service giant Uber is facing a bad blow to its business model. Reuters reports the California Labor Commission filed a ruling Tuesday, related to a San Francisco-based driver’s claim, that she is an employee of the company. Uber is appealing the decision.
Uber hasn’t recognized drivers as employees, but as “partners” — partners from whom the company took a 20 to 30 percent share of profits for connecting them with passengers. According to Business Insider, Uber currently has few costs besides its 1,000-plus employees in its San Francisco headquarters.
Business Insider reports:
If this ruling sticks, Uber won’t just be a logistics company printing money, at least in California. The cost to run the business there would skyrocket. Uber would have to seriously consider downsizing the number of drivers it has as partners and provide benefits for them all.
Employees are expensive; tacking on 1 million+ more would be a huge blow to Uber, which was last valued at $50 billion. Companies have to pay social security and medicare taxes for each employee among other things, according to the IRS. They don’t have to do any of that for independent contractors. Also, drivers currently have to cover a lot of their expenses — such as gas, car maintenance and insurance — themselves, although Uber has begun to offer perks to offset some of these costs.
The ruling is only for California, and Uber and Lyft are facing other lawsuits over labor classification, but the commission’s decision is one more small strike against the branding notion of the so-called “sharing economy.”
Jenn Stanley is a freelance journalist, essayist and independent producer living in Chicago. She has an M.S. from the Medill School of Journalism at Northwestern University.