Uber's Business Model Rocked As California Rules Driver Is An Employee

California Labor Commission has ruled Uber drivers are employees and not independent contractors, shaking the multibillion dollar corporation's business model.

California ruling challenges Uber business model

The California Labor Commission has ruled that an Uber driver is an employee —not an independent contractor — a decision that could potentially hurt the multibillion dollar corporation's business model and drive up the company's costs. 

The decision comes after San Francisco driver Barbara Ann Berwick filed a claim against the company and results in giving Berwick $4,000 in reimbursement payments. But those costs are nowhere near what Uber might be required to pay if every driver is determined to be an employee. The decision has even greater consequences for Uber's business model, threatening to tear down what made the company successfully blow up. 

With an employer-employee relationship, Uber would have to pay overtime, taxes and possibly even reimburse drivers for gas, tolls and maintenance — costs Uber evades with drivers as simply independent contractors. But if drivers are considered employees, Uber could be pressured to downsize with the increase in costs. 

Uber will not have to make any necessary changes yet as the company is appealing the ruling. 

Uber insists drivers are the ones taking the wheel in their jobs. In 2012, the California Labor Commission found a driver was an independent contractor because he could dictate his hours and five other states have ruled drivers are independent contractors. 

"It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control," an Uber spokesperson said. "The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.”

Uber does not incur too many expenses, but now the successful business model that made the startup skyrocket could be spun on its head. The new ruling risks turning the corporation into a smaller-margin enterprise by paying up. 

Read more: Uber Passenger Sues for $2M Over Alleged Stabbing

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