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Uber drivers as employees or contractors: what's the big deal?

Whether you actively follow California employment law news or simply enjoy having an easy way to schedule a ride somewhere, you've probably heard about a recent case involving the online ride-sharing company Uber. On Tuesday, the California Labor Commission ruled on an appeal by an Uber driver who had been seeking reimbursement from the company for job-related expenses. The trouble was, companies only have to reimburse employees -- not independent contractors.

Uber, Lyft and a variety of other companies organize their services in a way they claim precludes the traditional employer-employee relationship as defined by U.S. federal and state laws. Uber says it doesn't operate a taxi service, or indeed employ any drivers at all. 

Instead, Uber describes itself essentially as a logistics company with a niche marketplace. People want quick, cheap rides that are reliable and easy to schedule; many drivers are happy to provide those rides for money, if it's convenient. All Uber does is use technology to efficiently hook those groups up with one another. Uber rides are cheap, the company claims, due to those efficiencies.

Critics of that business model argue, however, that it's not efficiency that makes Uber rides inexpensive; it's exploitation of its workers. Uber saves money by labeling its workers independent contractors and thereby denying them basic workplace rights, such as:

  • Guaranteed minimum wage, overtime pay and other protections of federal and California labor laws
  • Reimbursement for job-related travel, prep time, mileage, meals and expenses
  • Employer payment of payroll taxes
  • Workers' compensation
  • Access to unemployment benefits
  • The right to unionize

Doesn't Uber get to decide whether its workers are independent contractors?

No. Both California and federal law determine who is legally an employee or an independent contractor; not employers. That said, the rules can be a bit complex, and many organizations misclassify employees -- either as contractors or as salaried workers who don't have as many workplace rights.

Both the federal Fair Labor Standards Act and the California Labor Code define whether workers are employees or independent contractors, each using a similar test. A number of factors are considered, but essentially the test is an attempt to determine whether an independent contractor is really independent, or in business for him- or herself. In this case, the labor commission determined that the driver was performing core functions of Uber's business and did not have a separate business.

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