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The 1099 Decision: Part 1

A California commission decides Uber drivers are employees, not freelance contractors, a decision that would destroy Uber's business model.

| BY Kent McDill

Americans are often affected by events that occur in California, and that is certainly the case in the matter of the recent lawsuit against the ride-sharing service Uber.

In what is being called the 1099 Decision, the California Labor Commission ruled that Barbara Ann Berwick, a former driver for Uber, should have been classified as an employee of the company rather than as an independent contractor, which is the status all Uber drivers currently have. The commission gave Berwick a $4,000 award for unpaid expenses, a decision Uber immediately appealed.

But this isn’t about Berwick’s $4,000 in expenses. This is about whether Uber drivers are employees and should be considered for employee benefits such as health care or paid time off, or whether they are freelance and independent contractors with no rights other than proper payment for services rendered.

(Contractors are required to file a 1099 tax form each year, which is where the decision got its moniker).

This decision not only affects Uber going forward. It could affect many of the world’s largest startups, which rely heavily on the low-cost business model of using contractors rather than hiring employees in order to keep expenses down and net profit high.

Uber drivers, for instance, bear the cost of maintaining their vehicles, paying for gas and insurance, whatever measures they take in terms of personal security, and the cost of their time. None of those costs are taken into consideration in what Uber drivers get from their fares (payments are all done electronically, with Uber taking 20 percent, plus a $1 ride fee).

If the drivers are employees, Uber is responsible for those costs, which is what Berwick claimed, a position with which the California Labor Commission agreed. Employees are also legally due certain labor protections which are costly to the company, and which Uber does not want to have to pay.

Uber claims it is only a technology platform that allows passengers to find drivers, and that it does not employ the drivers. The California Labor Commission claims Uber is “involved in every aspect of the operation”, setting standards for the quality and age of the vehicles used, and approval ratings of drivers from riders, which can decide whether a driver can continue to work for Uber.

The CLC also said Berwick’s work was “integral to the Defendants’ business’’, making her an employee. “Plaintiff did the actual transporting of those passengers. Without drivers such as Plaintiff, Defendants’ business would not exist.”

Uber’s appeal takes place in San Francisco Superior Court, where the CLC decision is not argued, but that the position is argued again from scratch. Any decision by the Superior Court could be appealed to the California Courts of Appeal, and then again to the Supreme Court of California if necessary. Certainly, the U.S. Supreme Court could be involved way down the line, so Uber is not immediately impacted.

Meanwhile, Uber is looking at a case brought by a Boston employee lawyer which has already been examined by a U.S. District judge, who declined to decide whether Uber drivers were employees, saying the matter needed to go before a jury. There is a hearing scheduled for August to determine if the case can be forwarded as a class-action lawsuit.

About the Author

Kent McDill


Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.

In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.

McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.

McDill is the father of four children, and an active fan of soccer, Jimmy  Buffett and all things Disney.