Why It Matters That California Just Ruled Uber Drivers Should Be Considered Employees

A shift in employment status from independent contractor to full-fledged employee could lead to more: more benefits for drivers—and more costs for customers.

The office that enforces California's labor statutes has ruled that Uber drivers are considered employees, and not independent contractors, a decision that could have wide-ranging implications for the nature of the so-called "sharing economy."

The decision on Wednesday comes from the case of Barbara Ann Berwick, who in September filed a claim with the California Labor Commission saying that she was owed wages by Uber that were unpaid, among other things. Berwick had used her own car to transport Uber customers, but Uber had provided the phone application necessary to conduct business. For the commission, that was enough to call Berwick Uber's employee.

Under the current model, most Uber drivers are considered independent contractors and are therefore usually not eligible for benefits like unemployment insurance, health insurance, or worker's compensation that "conventional" employees in the workforce are. The same goes for people who work for Lyft, another ride-sharing service, and AirBnb, a room-sharing company. All three are part of the sharing economy, an umbrella term for digital applications that allow people to rent services they typically already have.

California's ruling is part of a larger dispute about the nature of Uber drivers. Recently, Florida said a former Uber driver was considered an employee, and could therefore be eligible to collect unemployment insurance.

Sen. Mark Warner of Virginia, who has pushed for greater benefits for Uber drivers, said on Wednesday that California's ruling showed why it was necessary for Washington to act.

"As many as one-third of American workers are participating in some aspect of the contingent workforce, and we have a responsibility to provide clarity and predictability instead of allowing inconsistency and confusion as these issues are litigated on a case-by-case and state-by-state basis," he said.

Warner's statement did not indicate whether he was in favor of classifying Uber drivers as employees, but the lawmaker recently said people employed by Uber, Lyft, and AirBnB should have a safety net similar to the ones employees have.

Maureen Conway, director of the Workplace Strategies Initiative at the Aspen Institute, said she hoped the ruling would get people talking about the challenges of worker arrangements for newer services like Uber. "It'd be nice to think that we could move toward a policy framework," Conway said.

Providing drivers with benefits could reduce turnover within Uber, Conway said. It could also affect customers: If Uber drivers are considered employees, and therefore are eligible for benefits, the cost of giving benefits to employees will fall on customers, whom Uber will charge higher prices to pay for those benefits.

Wilma Liebman, former chairwoman of the National Labor Relations Board, said national legislation on worker classification would be difficult to push through, citing the usual partisan gridlock. Drivers are likely to see more changes at the state level. She said that while applications like Uber are innovative and user-focused, decisions like the ones made in California and Florida are about workers' economic security.

"Underlying this whole legal issue is how people in today's society are going to make a living," she said.