California labor commission rules Uber drivers are employees (update: Uber responds)

The California labor commission has ruled that an Uber driver qualifies as an employee, not a contractor, of the company. As a result Uber will have to reimburse a driver for expenses accumulated in the line of duty. That includes $256 in tolls and the IRS rate of $0.56 per mile for use of a personal vehicle for business purposes. But the total award of $4,152.20 is not what scares the company, that's pocket change seeing as how it was recently valued at roughly $50 billion. No, the king of cars-for-hire is afraid of the broader implications. If their current network of over one million drivers suddenly became employees, running the business could get a lot more expensive. For one, companies need to pay social security, payroll and medicare taxes for their employees. And it could have implications for the expectation of health or retirement benefits and even leave Uber vulnerable to renewed pressure from taxi unions.

Of course, Uber is appealing the ruling and could keep this issue tied up in court for sometime. Plus, this ruling only applies in California for the time being, but it could be an omen of more trouble waiting on the horizon.

[image credit: AP Photo/Eric Risberg]

Update: Uber posted the following statement clarifying that the ruling applies to a single driver, not its entire network of contractors.

Reuters' original headline was not accurate. The California Labor Commission's ruling is non-binding and applies to a single driver. Indeed it is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver 'performed services as an independent contractor, and not as a bona fide employee.' Five other states have also come to the same conclusion. It's important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.