Uber labour ruling in California could send shockwaves through the sharing economy

The rapid rise of ride-hailing firm Uber has seen it grow into a global business reaching from California to India and many points in between. The paying public has been receptive, but there has been outrage amongst taxi companies and the firm has even been banned by regulators in some jurisdictions.

Now a labour tribunal in California has ruled against Uber on a legal loophole at the heart of its business model: that its drivers are not employees, meaning it does not hold certain (potentially expensive) responsibilities towards them as an employer.

Uber makes use of technology to match freelance drivers to passengers needing a lift. In the same way other apps, such as Airbnb or Handy, respectively match those with a spare room or domestic/trades skills with those in need. Called the “sharing economy”, this approach is seen by some such as Debbie Wosskow in her 2014 report for the UK Department for Business Innovation and Skills, as potentially beneficial to the functioning of the labour market.

Such a model can be seen to potentially benefit freelancers in particular. The platforms allow flexible working and reduces freelancers' transaction costs through automatically assigning payment to them for their services. Society may also benefit. Wosskow recognises the potential for sharing platforms to reduce wider unemployment and underemployment (where, for example, workers may be over-qualified or work fewer hours than they would like).

But the model has prompted clashes with existing businesses over allegations related to users' safety and unfair competition. These are particular concerns for often heavily regulated industries such as hotels and licensed cabs. Airbnb has also faced fines in Barcelona for issues around accountability and unfair trade, after failing to register with the local authorities. While those sharing platforms which are aware of such concerns offer insurance, minimum service guarantees and background checks for contractors, regulatory issues remain.

Regulatory issues specific to employment crop up in many of these firms' business models. Handy explicitly states on its website that it is not an employer. By not affording workers employee status, organisations reduce their responsibilities and legal obligations. Under UK law, for example, employees (who work under a direct employment contract with an organisation) are distinct from “workers” who do not. Workers are not entitled to, amongst other rights, compensation in cases of unfair dismissal as well as being deprived of various forms of leave and statutory sick and redundancy pay.

Uber hasn’t met with universal acclaim, with protests in cities such as Portland.aaronpk, CC BY

This is a contemporary concern. Research from the UK’s Chartered Institute of Personnel and Development reveals that non-standard employment relationships (such as zero-hours and temporary contracts, homeworking and self-employment) have increased since the economic crisis of 2008. What’s more, a growing number of those working under such arrangements do so involuntarily. The sharing economy may further increase the precarious nature of modern employment and encourage exploitation and uncertainty.

The ruling against Uber last week may prove ground-breaking. The California Labour Commission ruled that Barbara Berwick, a contractor working for Uber, should be classed as an employee after she sought work-related expenses from the company. The commission defended its judgement saying the services of Berwick and other drivers are integral to Uber who could not exist without them. Uber is contesting the ruling (it has successfully defended itself in other similar cases in the US) but the ramifications are potentially huge for Uber and other firms in the sharing economy.

Some analysis has decried the ruling as a threat to the existence of the sharing economy model, while others have highlighted the financial implications of the ruling to similar businesses. The ruling also has implications for contemporary employment: while the decision may not eventually be upheld in California and won’t directly apply elsewhere, it has brought the insecurity of some work into sharp focus.

It highlights the importance of viewing potentially positive trends in contemporary employment – such as technologically powered labour flexibility – with a critical eye, recognising potential negative effects such as uncertainty and reduced employer responsibilities. Opportunities offered via sharing platforms may benefit those moonlighting or not seeking a regular income, but the nature of this sort of employment may be harmful to others.

Developing technology opens the space for companies such as Uber to expedite the rise of precarious employment across the economy. The status of workers covered under such arrangements and the impact this has on their rights should become a key future concern. The Berwick case in California may be a milestone in this debate for the future of employment.

Scott Hurrell does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.