In Uber case, California commission crushes contractors; could harm sharing economy

By Eric Boehm | Watchdog.org

Observers say a court ruling in California this week could devastate aspects of the so-called “sharing economy” — services such as Uber and AirBnb.

The ruling, filed in state court by the California Labor Commission, says drivers who work with the Uber smart phone app are employees, not contractors. It’s a small difference, but it’s an important one. If all drivers using Uber are  — technically — employees, the company would be required to comply with a slew of regulations that don’t apply to contractors.

“This ruling will have a chilling effect on the entire sharing economy, said Berin Szoka, president of TechFreedom, a nonprofit advocating fewer government regulations on technological progress.

The commission’s ruling could force companies such as Uber to scale back offerings or increase prices, Szoka predicted. In turn, that could limit the choices consumers have come to expect as a result of the growth of businesses in the sharing economy.

Uber allows anyone to, essentially, turn their vehicle into a taxi by signing up as a driver with a smart phone app. The app connects drivers with users who need a ride and provides automated payment from the rider’s account to the driver’s. Uber takes a cut of the price, but the driver gets the rest. Lyft operates in much the same way.

Other businesses in the “sharing economy,” such as AirBnb, allow people to rent out their homes or apartments, essentially adding to a city’s supply of hotel rooms in the same way Uber or Lyft add to its supply of taxis.

“The independent-contractor business model helped drive the success of Uber, Lyft, Airbnb, and other sharing-economy companies,” Szoka said.

It works because the companies don’t have to cover all the costs that come with the legal definition of employees. That means they would have to provide health insurance, along with overtime pay, unemployment insurance, workers’ compensation and other benefits.

In court, Uber argued its drivers fit the definition of independent contractors because it’s entirely up to each individual driver to set his own work schedule and that Uber provides “nothing more than the technological platform,” according to Reuters.

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