In what may the most expensive employee labor claim in history, the California Labor Commission ruled Wednesday that an Uber California drivers is an “employee,” rather than an “independent contractor.” Uber could potentially be on the hook to pay about $200 million in employee taxes and benefits for 2014 alone.
The company is exposed to hundreds of millions of dollars in legal liabilities for violating “employee rights.” If other states follow California’s lead, Uber will billions of dollars and its business model would appear to have been destroyed.
Uber’s ride-sharing company in the U.S. stated that it had about 160,000 contractors, but only 2,000, about 1 percent, of those individual workers were deemed “employees.” But with Wednesday afternoon’s ruling that drivers are employees, and California having about 11 percent of the U.S. population, that would mean Uber has at least another 17,600 employees.
For the six years since the company was founded in San Francisco, Uber has failed to pay the mandatory 7.65 percent employer contribution portion of Social Security and Medicare taxes, California unemployment compensation insurance, workers’ compensation insurance, Obamacare burdens, and other employee costs.
Breitbart News reported earlier this week that the U.S. Bureau of Labor Statistics’s latest employer compensation cost estimate for wages and salary to employ a full-time worker averaged $22.88 per hour in March. But the cost of benefits adds an additional $10.61, or 46 percent more, for a $31.65 total.
If the average Uber “employee driver” only worked 20 hours per week, that would mean that the total hours worked by all 17,600 California drivers would be equal to 18,304,000 hours. Multiplying the total number of hours worked by Uber drivers in California times the average cost of benefits at $10.61 per hour implies that Uber immediately owes about $194,205,440 just for the drivers’ benefits cost in 2014 alone.
But Breitbart News also revealed,one of biggest financial benefits in converting employees to contractors is slashing lawsuit exposure to what has become a myriad of expanding “Legal Rights” for “employee protections” against discrimination and wrongful termination, along with enhanced rights to unionize, be paid overtime, and take numerous family leaves. Uber will probably be liable for another $200 million for employee liability claims, just in California in 2014.
Given that Uber has been in business in California for six-and-a-half years, the approximately $400 million Uber owes could be at least tripled to $1.2 billion
Uber has kept about 20 percent of customer charges for overhead and profit to operate what was supposed to be a smartphone referral app. But Uber will have to raise their costs immediately by up to another 45 percent just to cover the “employee” costs. That would seem to destroy Uber’s competitive advantage of being about a third cheaper than yellow taxis.
Uber did close a $4.8 billion venture capital deal in the last five months at a valuation of $50 billion. But it would seem that investors that put such huge venture capital pixie dust into Uber just lost a huge percentage of their principal dollars. With the economic fundamental of competitiveness basically destroyed, Uber is going to have difficulty raising any new money to stay in business, let alone contemplate growing the business.
he California Labor Commission’s decision has very destructive implications for other “crowdsourced” services such as Uber competitor Lyft; task service TaskRabbit; cleaning service Homejoy; plus dozens of knock-off companies like Handy, Eaze, Luxe, and Upwork.
The Labor Commission issued its ruling that San Francisco-based driver Barbara Ann Berwick was owed a liability award of $4,000 from Uber. The earlier award became visible when Uber said it will appeal the Commission’s decision to the state courts.
Uber is also facing a federal mass tort litigation from a group of drivers in San Francisco. Earlier this year, the U.S. District Court refused to grant summary judgment and will let a jury decide if Uber’s drivers should be classified as independent contractors, according to Reuters.
Update: An Uber spokesperson contacted Breitbart News to offer this clarification:
Reuters’ original headline was not accurate. The California Labor Commission’s ruling is non-binding and applies to a single driver. Indeed it is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver ‘performed services as an independent contractor, and not as a bona fide employee.’ Five other states have also come to the same conclusion. It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control. The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies.
This article has been updated.