A recent decision by the California Labor Commissioner’s Office has held that drivers for Uber, the popular online ride-hailing service, are employees of the company rather than independent contractors.

In Berwick  v. Uber Technologies, LLC, the office ordered Uber to pay Barbara Ann Berwick $4,152.20 in expenses and other costs for the roughly eight weeks she worked as an Uber driver in 2014. Case No. 11-46739 (Cal. Lab. Comm. June 3, 2015). Ms. Berwick filed a complaint with the Labor Commissioner alleging that Uber did not sufficiently pay her for her time. Determining whether she was an employee or independent contractor was critical to the hearing officer’s holding that the company had to pay her for certain expenses.

In California, as in Minnesota, courts use a multi-part analysis to determine whether someone is an employee or an independent contractor, considering factors such as whether the person performing services is engaged in an occupation or business distinct from that of the principal, whether the work is a part of the regular business of the principal or alleged employer, and the alleged employee’s investment in the equipment or materials required.

Uber argued that is drivers are independent contractors because they use their own vehicles, set their own working hours, and are never required to accept any particular assignment. Uber said it was “nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation.”

The hearing officer did not find that convincing. “The reality . . . is that Defendants are involved in every aspect of the operation,” she said. The officer noted, among other aspects of Uber’s business:

Defendants vet prospective drivers, who must provide to Defendants their personal banking and residence information, as well as their Social Security Number. Drivers cannot use Defendants’ application unless they pass Defendants’ background and DMV checks.

Defendants control the tools the drivers use; for example, drivers must register their cars with Defendants, and none of their cars can be more than ten years old. . . .  Defendants monitor the Transportation Drivers’ approval ratings and terminate their access to the application if the rating falls below a specific level . . . .

While Defendants permit their drivers to hire people, no one other than Defendants’ approved and registered drivers are allowed to use Defendants’ intellectual property. Drivers do not pay Defendants to use their intellectual property.

Uber has appealed the ruling.

Takeaway:  Companies who use independent contractors as part of the new “sharing economy” should keep track of this case and regularly evaluate whether their independent contractors are improperly classified.