From Payroll Taxes to Sick Leave Laws … Federal Ruling Could Be Game Changer for Sharing Economy

A federal judge’s decision last week to certify a class of California Uber drivers in their lawsuit claiming Uber has misclassified them as independent contractors rather than employees has numerous potential impacts on both private and public employers. The decision is a big win for Uber drivers, allowing them to proceed with the class action on their core claims, which provides them much greater leverage in any efforts to settle the case. There is also the possibility that regulatory considerations for the sharing economy will be affected based on this case.

An ultimate finding that drivers are employees rather than independent contractors would have massive effects on Uber’s business model, forcing it to comply with minimum wage, overtime and meal and rest break laws, to pay payroll taxes, to obtain workers’ compensation coverage, and to potentially provide benefits. A decision that drivers are employees would also grant the employees the right to unionize, as well as the right to seek reimbursement for both mileage and tips. The decision follows the June ruling by a California labor commissioner that a single Uber driver was an employee.

Beyond its implications for Uber itself, this decision highlights the potential for other class actions based on independent contractor misclassifications throughout the sharing economy. Many sharing economy businesses rely on workers that they classify as independent contractors, to keep costs low and valuations high. While no company has done this to the same extent as Uber (which is currently valued at $50 billion), the fact remains that the cost of doing business in the sharing economy will greatly increase if these companies are required to treat their workers as employees. A classification of the workers as employees would also extend additional protections and benefits, including protection under antidiscrimination statutes, application of the full scope of state and federal labor laws, and even a requirement to provide paid sick leave under California’s new sick leave law.