Uber drivers: Contractor or Employee?

More and more people use Uber to get from point A to point B and it has become a real threat to many taxi companies. But what is Uber? Why is it so popular and why is the recent lawsuit considered to be a crucial strike for its business model?

To many passengers Uber has become almost a synonym for taxis. The Uber app allows the passengers to connect with drivers. The app also takes care of all payments through charging the passenger's credit card, taking a certain percentage for itself, and putting the remaining amount into the driver"s account. No cash needed. There are several different levels of service available starting with transportation in every-day town cars or, if requested, more pricey rides in high end cars or larger vehicles such as SUVs.

On Tuesday 8th 2015, a federal judge granted class-action status to a lawsuit questioning the employment qualifications of Uber's drivers. This could be crucial for Uber's business strategy as it will allow a jury to decide on whether or not Uber drivers should be considered employeesor 1099 contractors. In his ruling, the judge certified that drivers who directly contracted with Uber and largely those who where drivers before June 2014 would be included in the class-action. Currently, Uber is not required to pay payroll taxes for their 1099 contractors. Minimum wage as well as overtime lawsalso do not apply to 1099 contractors. According to an article in the New York Times, classifying workers as contractors was Uber's way of keeping labor costs low. A ruling against Uberwould therefore result in implications for its more than 160,00 drivers. It would change the whole financial landscape of how Uber does business. While many drivers are willing to state that they appreciate being 1099 contractors and therefore not being bound by any kind of schedule, in a recent lawsuit the California Labor Commissioner's Office ruled in favor of a former Uber driver. The court held that she should be considered a employee and ordered Uber to pay more than $4,000 in expenses and other costs for the two months she worked as a driver. While the decision on the class-action lawsuit will not be forthcoming in the near future only time will tell if Uber can survive the battle as to whether their drivers are considered employees or 1099 contractors.