News & Politics

California Case Could Foreshadow the Next Phase of Washington’s Uber Fights

The ride-hailing company's next problem could be much bigger than taxi regulations.

A ruling in a labor dispute in California between Uber and one of the ride-hailing company’s drivers could be a preview of the firm’s roller coaster relationship with regulators in Washington. The California Labor Commission on Wednesday ordered Uber to reimburse a San Francisco driver for $4,000 in expenses because, the commission ruled, she should be counted as an employee instead of an independent contractor.

That judgment could upend Uber’s business model of a loosely organized, wide-open network of drivers who are individually responsible for their own physical overhead. While the company has long identified itself as just a “technology company,” the California board ruled that Uber is “involved in every aspect of the operation,” Reuters reported.

While the case only applies to California—and Uber says it will appeal—it might not be too long before similar cases are brought in the Washington area, where Uber and its competitors like Lyft and Sidecar have stumped officials, says Christopher Koopman, a research fellow at George Mason University’s Mercatus Center. While DC, Virginia, and Maryland have all rewritten their livery regulations as companies like Uber become ingrained in their economies, these “sharing-economy” firms eventually impact other policy areas.

“Just like what we’ve seen with the transportation regulation issues, you’re seeing other parts of governments see how they treat the firms that are making up the sharing economy,” Koopman tells Washingtonian. “It wouldn’t surprise me if this is the next area where the sharing economy experiences the next round of growing pains as local governments figure out how they adapt and change.”

Verdicts that reclassify Uber drivers from contractors to employees could force the company to take on all sorts of payments it doesn’t currently make to drivers, including overtime, workers’ compensation, and family and sick leave. Koopman, who has published papers urging looser regulation of Uber, Airbnb, and other sharing-economy ventures, says adding those costs would wreck Uber’s business model: the driver pool would be severely restricted, and fares for consumers would rise substantially.

“The current arrangment drivers have offers them a degree of mobility that you don’t see in a traditional employee-employer relationship,” Koopman says.

A survey Uber commissioned earlier this year noted it has more than 10,000 active drivers in the Washington area. But the company’s definition of “active” includes any driver who has picked up at least one fare in the past month. The actual number of drivers on the road at any time—and number who work Uber’s network full-time—are more fluid (and undisclosed).

Senator Mark Warner wants to come up with a national solution to Uber’s continuously murky regulatory status, which is governed state-by-state and city-by-city. “Today’s ruling from the California labor regulators demonstrates why federal policymakers need to reexamine the 20th-century definitions and employment classifications we’re attempting to apply to a 21st-century workforce,” the Virginia Democrat says in a press release.

Warner has been gnawing on what he calls the “gig economy”—which includes Uber drivers, Airbnb hosts, and Etsy craftspeople—for several weeks. In a June 4 speech at the New America Foundation, he proposed establishing safety-net programs for freelance workers.

“Somebody may be doing very, very well as an Etsy seller and Airbnb user and Uber driver and part-time consultant,” Warner said. “But if they hit a rough patch, they have nothing to stop them until they fall, frankly, back upon government assistance programs.”

Classifying freelancers and contractors as direct employees would halt the whole thing, Koopman says. “This is going to be the second phase in the sharing-economy’s growth. Do state and regulators figure out how to embrace the sharing economy and the benefits that come with it, or remain steadfast in their old approach?”

Staff Writer

Benjamin Freed joined Washingtonian in August 2013 and covers politics, business, and media. He was previously the editor of DCist and has also written for Washington City Paper, the New York Times, the New Republic, Slate, and BuzzFeed. He lives in Adams Morgan.