Uber Under Mortal Attack in California

The California Labor Commission ruled this week that an Uber driver is an employee of the company, not an independent contractor, as Uber has previously claimed. Robert Galbraith/Reuters

A San Francisco-based Uber driver who filed a claim against the rideshare company is an employee and not, as Uber argued, an independent contractor, according to the California Labor Commission. The ruling orders Uber to pay the driver about $4,000 for expenses.

The ruling, which Uber considers nonbinding, could potentially have devastating implications for the rideshare company in California. If similar rulings are issued regarding other rideshare companies like Lyft, or sharing economy players such as Airbnb, Instacart and TaskRabbit, we could see the growth of these popular and innovative companies stifled as they cope with the costs associated with having providers classified as employees.

The California Labor Commission ruling states that Uber is "involved in every aspect of the operation." It is true that Uber provides a technology and that it carries out background checks on drivers. But Uber does not provide vehicles or set any hours or for its rideshare drivers. In fact, according to research on Uber wages conducted by Princeton economist Alan Krueger and Uber's Jonathan Hall, only 38 percent of Uber drivers rely on Uber as their sole source of income.

Regulators and lawmakers ought to realize that Uber drivers, who are often driving for Uber part time while using their own vehicles on their own schedule, shouldn't be treated the same as traditional workers.

Uber might seem like something relatively new, given that it relies on users hailing rides with smartphones, but fundamentally it is making a very familiar experience easier. People were offering car rides in exchange for money long before the rise of the Internet, let alone smartphones.

What makes Uber and other rideshare companies like Lyft so popular is that if you want a ride, you no longer have to find a friend ready and willing to give a ride at a particular time or stand on a street corner waving your hands in the hope of hailing a taxi. Rather, you can simply open an app and find a driver who is ready and willing to give a ride in exchange for a fare, in a matter of minutes.

Uber, and the sharing economy more broadly, fit awkwardly into existing regulatory frameworks, but this should be welcomed as an opportunity to revise outdated regulations and laws, not an opportunity to regulate popular new companies as if they are the older incumbents they are competing with.

As the commission itself noted, Uber would not exist without drivers like the one who filed the claim. Certainly, Uber as we know it will become a very different company if its drivers in California are classified as employees. It will begin to look more like its traditional competitors rather than an innovative technology company, which would be a great shame.

Matthew Feeney is a policy analyst at the Cato Institute. Before coming to Cato, he worked at Reason magazine as assistant editor of Reason.com. He has also worked at The American Conservative, the Liberal Democrats, and the Institute of Economic Affairs. He is a dual British/American citizen and received both his B.A and M.A in philosophy from the University of Reading in England.

This article first appeared on the Cato Institute site.