In a case of technology running into reality, Uber, the company that allows people seeking a ride to connect with nearby Drivers, is facing a challenge by drivers seeking status as actual Employees of Uber.  The issue is whether Uber drviers are employees or independent contractors.   Uber treats all drivers utilizing its App like independent contractors referred to as Partners, but as the case filed in Federal District Court in San Francisco plays out, Uber seems to be something more than just a software provider.

U.S. Distric Court Judge Edward Chen recently heard Uber’s Motion for Summary Judgment in in San Fransico, CA.  Judge Chen indicated that the test is whether Uber exerts control over its drivers and whether those drivers are providing a service and benefit to Uber.

For example, Uber’s website contains a section for Drivers to apply to utilize its services. While Uber calls its drivers ‘Partners’ it imposes specific requirements and can terminate a Driver’s ability to use Uber. This appears to go beyond merely providing software for drivers to connect with riders.   Karen Gullo’s recent article in Bloomberg Business quotes Judge Chen as stating “The idea that Uber is simply a software platform, I don’t find that a very persuasive argument.”  While Judge Chen did not issue a ruling, he stated “I do think drivers are serving Uber.  If all you were doing is selling an app you could sell it at an app store, but Uber does a little more than that, doesn’t it?” You can read further here.

In New Jersey, the standard as to whether a worker is an independent contractor vs. an employee for workers’ compensation purposes also involves a ‘control’ test. Essentially, how much control does an employer have over it’s workers.   Factors involved in the control test include whether the employer sets a workers hours, provide assignments, set requirements on how a driver can operate or terminate services.

Whether a company is an employer for tax and benefit purposes in New Jersey, as opposed to whether it has to provide workers’ compensation protection can be two entirely different issues.  A worker can be considered an independent contractor with regards to wages, taxes and benefits and at the same time an employee, in the control of a company, for the purposes of workers’ compensation coverage.   If an Uber driver is injured in and accident, and doesn’t carry workers’ compensation insurance, it appears a strong case can be made that Uber is the actual employer.

As this develops, Uber will need to figure out what steps are necessary to shield itself from becoming an employer to its drivers in the future.    The problem Uber will face is that if the company wants to maintain its current level of control, which helps to insure quality and a safe experience for Uber riders, it will be difficult to avoid the obligations of an employer. The low cost ride experience will be threatened by requirements that drivers provide their own workers’ compensatnoi insurance and pay withholding taxes.

Existing taxi and Limo services also have difficulty competing with a company like Uber, that has very little cost involved in utilizing its drivers and can undercut prices of more traditional transportation services. While a Limo company may have to insure, pay benefits and match withholding taxes for Unemployment and Social Security, the Uber model avoids these costly expenses and allows it to offer significantly reduced rates.

What is clear in the rapidly evolving transportation sector, is that this is not the end of the debate as to whether drivers for companies such as Uber qualify as Employees or Independent Contractors for the purposes of benefits or workers’ compensation coverage.