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Here's How Uber Could Lose the Bigger Battle Over Employee Classification

It's far from over. Uber runs the risk of ultimately having to classify drivers as employees if it keeps appealing.

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Here’s everything you need to know about what happened with Uber’s employee classification battle yesterday.

The California Labor Commission said an Uber driver should be considered an employee and not an independent contractor, as Uber claims. While that seems like a big deal, the decision doesn’t apply to all Uber drivers in the state. The Labor Commission isn’t part of the court system, so it can’t set a binding precedent. Uber has appealed its judgment, so the case is going to the Superior Court — California’s lowest court.

Contrary to some of the breathless coverage, this is a minor ruling that applies to only one person, but it could become more broadly applied if Uber continues to appeal.

That’s important because a large part of Uber’s value (maybe it’s only true value) hinges on the fact that it doesn’t employ its drivers — that means no payroll taxes, benefits costs or insurance. If it had to treat drivers as employees, that would severely cut into its profits or result in massive losses. It would also have an impact on the broader on-demand startup world, e.g., Lyft, Handy, Homejoy, Postmates, DoorDash, etc.

Here’s an FAQ breaking down how Uber could ultimately lose this battle. The information comes from speaking with Don Polden, an employment law professor at Santa Clara University, and Shannon Liss-Riordan, the Boston-based lawyer representing Lyft and Uber drivers in two class-action lawsuits.

The legal system is complicated and fragmented, so it will be tough to get to a concrete ruling, either national or state wide, on Uber’s driver classification.

What happens if the Superior Court rules against Uber? Does that set a precedent for all its California drivers?

No. But the decision could be used as a non-binding precedent in future cases, meaning judges in other courts could rely on it or ignore it when similar cases cross their desk. If Uber appeals the Superior Court ruling, the case will go up to the Court of Appeal.

And if the Court of Appeal says this driver is an employee, then every court in California would be required to rely on that decision?

No. But other courts in that Court of Appeal’s jurisdiction would be required to use it when judging future cases involving Uber driver classification. The jurisdiction covers twelve Northern California counties like Alameda, San Mateo and Humboldt.

Why would Uber appeal at all then? Why not pay the $4,000 and let the case die in the lower courts with less of an impact?

Other courts and hearing officers might choose to consult the Labor Commission’s opinion if it’s not knocked down, and use it to inform their decisions. Uber wants to stop that in its tracks. Furthermore, employers tend to want to get ahead of an issue like this so they can structure the business in a stable way.

Okay, so is there any decision about Uber’s driver classification that would be binding precedent for the entire state?

If the state Supreme Court ruled that a driver is an employee.

So if Uber just keeps appealing this up through the court system, then eventually we could get an entire state precedent?

Not exactly. The state Supreme Court can pick and choose what cases it wants to hear. If the case makes it to the appeals court and the Supreme Court thinks that the appeals court did a good enough job making a decision, then it would probably leave the case alone.

Does that mean there will continue to be these one-off court cases here and there across California that don’t add up to anything definitive?

Well, a pile of cases might eventually make the Supreme Court decide it’s an important enough issue to tackle. And if the Supreme Court took on the issue and ruled that Uber drivers were employees, that would be a binding precedent for all courts in California.

How would that ruling be enforced? Couldn’t Uber just ignore it, since Uber has a habit of ignoring government bodies?

It would be fined by the government for ignoring the ruling. It would also open itself up to more lawsuits that it would likely lose. If it refused to pay these penalties, at some point Uber’s assets could be seized, although it’s highly unlikely it would get to that point. Not many companies ignore court judgments.

But if Uber wins any of these rulings, is that it? End of story?

No. There are separate class-action suits in the federal court system now that could more directly affect Uber and how it classifies its employees. More on that next time.

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