A la­bor agency’s rul­ing that a driver is an em­ployee, not a con­trac­tor, could dis­rupt the firm along with other start-ups UBER HITS A BUMP

Los Angeles Times - - FRONT PAGE - By Chris Kirkham, Chris­tine Mai-Duc and An­drew Khouri

The Uber busi­ness model is pretty sim­ple: Peo­ple use the ride-hail­ing app to find a driver to take them where they want to go for a price.

But is that driver an Uber em­ployee or an in­de­pen­dent con­trac­tor?

Now, the Cal­i­for­nia La­bor Com­mis­sioner’s of­fice has ruled that San Fran­cisco Uber driver Bar­bara Ann Ber­wick was an em­ployee — and en­ti­tled to re­ceive more than $4,000 in mileage and toll ex­penses be­cause her ser­vices were “in­te­gral” to the com­pany’s busi­ness model.

With­out driv­ers, Uber’s busi­ness “would not ex­ist,” the or­der con­cluded.

The de­ci­sion — handed down ear­lier this month and ap­pealed on Tues­day by Uber — could dis­rupt the Sil­i­con Val­ley start-ups that have rede­fined the re­la­tion­ship be­tween com­pa­nies and work­ers. The case could spawn other le­gal chal­lenges from work­ers and reg­u­la­tions from cities and states.

If the case winds up be­fore the Cal­i­for­nia Supreme Court, it could lead to a broader, prece­dent-set­ting rul­ing.

Uber con­nects driv­ers and pas­sen­gers through a smart­phone app, much in the same way that Airbnb dig­i­tally con­nects prop­erty own­ers and short-term renters. Both com­pa­nies, and oth­ers like them, have faced a se­ries of po­lit­i­cal bat­tles in states and cities strug­gling to reg­u­late such fast-grow­ing en­ter­prises, which are up­end­ing busi­ness mod­els — and of­ten draw­ing protests.

Uber has grown more than six­fold over the last five years — it now op­er­ates in more than 150 U.S. cities and 57 coun­tries around the world. The com­pany has raised more than $5.9 bil-

lion from in­vestors, putting Uber at a $41-bil­lion val­u­a­tion, above Gen­eral Mo­tors and Ford, and the high­est-val­ued start-up in the U.S.

Those high val­u­a­tions, how­ever, could be threat­ened by a ris­ing tide of le­gal and reg­u­la­tory chal­lenges across the globe. Taxi com­pa­nies have ar­gued that such “ride-shar­ing” ser­vices should face much stricter reg­u­la­tions, and Uber’s la­bor prac­tices have come un­der in­creas­ing scru­tiny.

In March, a fed­eral judge gave the go-ahead to a clas­s­ac­tion law­suit in fed­eral court in San Fran­cisco in­volv­ing driv­ers who ar­gue that they are em­ploy­ees en­ti­tled to ben­e­fits such as un­em­ploy­ment in­sur­ance, work­ers’ com­pen­sa­tion and healthcare.

Uber’s profit mar­gins could be af­fected if sim­i­lar de­ci­sions hap­pen in other states across the coun­try, said Thilo Koslowski, automotive prac­tice leader at tech­nol­ogy re­search firm Gart­ner.

“This could po­ten­tially be a big blow to the com­pany, in terms of how it en­vi­sions its busi­ness model,” Koslowski said.

But he said Uber could po­ten­tially find a com­pro- mise that would al­low driv­ers who work a cer­tain num­ber of hours, for ex­am­ple, to be clas­si­fied as em­ploy­ees, but leave oth­ers work­ing as part-time con­trac­tors.

“Uber will con­tinue to ex­plore op­tions to re­duce the cost fac­tors of a hu­man driver,” Koslowski said, adding that the com­pany has al­ready ex­pressed in­ter­est in driver­less cars.

Uber has con­tended that it of­fers its driv­ers the free­dom to choose how of­ten and when to work, mean­ing the tra­di­tional em­ploy­erem­ployee re­la­tion­ship does not ap­ply.

“It’s im­por­tant to re­mem­ber that the No. 1 rea­son driv­ers choose to use Uber is be­cause they have com­plete flex­i­bil­ity and con­trol,” the com­pany said in a state­ment Wed­nes­day re-

spond­ing to the La­bor Com­mis­sioner’s rul­ing. The com­pany also said the de­ci­sion con­tra­dicted a 2012 rul­ing in which the of­fice con­cluded that a driver had per­formed ser­vices as a con­trac­tor and “not as a bona-fide em­ployee.”

The most re­cent or­der found that Uber was in­volved in “ev­ery as­pect of the op­er­a­tion,” in­clud­ing vet­ting driv­ers, re­quir­ing them to pro­vide per­sonal bank­ing, So­cial Se­cu­rity and ad­dress in­for­ma­tion, con­duct­ing DMV and back­ground checks, and only al­low­ing driv­ers to use reg­is­tered cars that are less than 10 years old.

Uber re­quires driv­ers to pay ex­penses. Un­like many taxi or limousine ser­vices, Uber doesn’t di­rectly em­ploy driv­ers, nor does it own or main­tain the ve­hi­cles used by the driv­ers.

Clas­si­fy­ing driv­ers as em­ploy­ees would be costly for Uber. In Cal­i­for­nia, for ex­am­ple, the com­pany would have to re­im­burse em­ploy­ees for gas, tolls and in­sur­ance and would also be on the hook for un­em­ploy­ment in­sur­ance, work­ers’ com­pen­sa­tion, So­cial Se­cu­rity and other ben­e­fits.

Ber­wick said she worked for Uber from July to Septem­ber last year. She rep­re­sented her­self dur­ing the pro­ceed­ings, she said, but was con­sid­er­ing hir­ing an at­tor­ney for the ap­peal.

“I think for them to ap­peal is silly,” she said, de­clin­ing fur­ther com­ment.

The clas­si­fi­ca­tion of “in­de­pen­dent con­trac­tor” ver­sus “em­ployee” has been a long-stand­ing source of conf lict in U.S. la­bor law, rang­ing from port truck driv­ers to jan­i­tors to de­liv­ery driv­ers. But in re­cent years, the de­bate has shifted into the high-tech start-up realm, where com­pa­nies have worked to de­velop ap­pli­ca­tions con­nect­ing work­ers who sup­ply ser­vices and cus­tomers who de­mand them.

Work­ers’ ad­vo­cates ar­gue that tech­no­log­i­cal in­no­va­tion shouldn’t change the ba­sic con­tract be­tween an em­ployer and its work­ers.

“It’s just a new man­i­fes­ta­tion of an old prob­lem,” said Caro­line Fredrick­son, pres­i­dent of the Amer­i­can Con­sti­tu­tion So­ci­ety, a pro­gres­sive le­gal pol­icy group in Washington. “Peo­ple tend to see it as an app or a soft­ware ap­pli­ca­tion, but in fact there are peo­ple who are do­ing jobs be­hind it.”

Firoze Ali, 62, was laid off about six months ago from an ac­count­ing job at a whole­sale elec­tron­ics com­pany. He said he tried to find a sim­i­lar job but had no luck.

So lately he’s been driv­ing for Uber. He sets his own hours, uses his own car and pays for gas to ferry riders across the South­land who sum­mon him with a flick of their smart­phones. He said Uber takes 20% out of each ride, plus a $1 ride fee.

He said he typ­i­cally makes about $550 a week — not enough to sup­port his fam­ily, he said.

He said he’d pre­fer an em­ployee model where the com­pany would pay for busi­ness ex­penses and he’d have set hours. But he said the ex­tra in­come is help­ful while he looks for some­thing more per­ma­nent.

“It’s bet­ter to make some­thing,” he said, “and be on the road.”

Jack Bilotta, on the other hand, thinks of him­self solely as an in­de­pen­dent con­trac­tor. Like many drawn to South­ern Cal­i­for­nia, he wants to make it big in Hol­ly­wood.

He said he started driv­ing for Uber in March to help pay the bills, while still do­ing free­lance work in the film in­dus­try.

“I like the po­si­tion I am in right now — to be in­de­pen­dent,” the 22-year-old said, while driv­ing a Los An­ge­les Times re­porter and pho­tog­ra­pher around Kore­atown. “With the f lex­i­ble sched­ules and work­ing on your own hours, it’s re­ally help­ing me main­tain what I am sup­posed to do right now as a film­maker.”

Katie Falkenberg Los An­ge­les Times

JACK BILOTTA, an Uber driver, dis­cusses work­ing con­di­tions af­ter the La­bor Com­mis­sioner’s of­fice ruled that another Uber driver is an em­ployee. Bilotta thinks of him­self solely as an in­de­pen­dent con­trac­tor.

Katie Falkenberg Los An­ge­les Times

RA­MON LOREN­ZANA drives for Uber on Wed­nes­day. The rul­ing on the sta­tus of Uber driv­ers ap­plies to only one but could lead oth­ers to pur­sue sim­i­lar ac­tions.

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