Will Uber Drive Up Fares in California Due to the New Labor Ruling?

June 17, 2015 Updated: June 18, 2015

California’s Labor Commission ruled that Uber should treat its drivers as employees, not contractors, potentially undermining the ride-sharing company’s longstanding business model.

As contract workers, Uber drivers don’t have fixed schedules and set their own workdays, but they also lack the privileges of full-time employees, including unemployment insurance, worker’s compensation, health benefits, or retirement plans.

The commission ordered Uber to pay $4,100 to Barbara Berwick, who drove as an Uber driver for three months last year, for costs incurred while working for Uber.

The decision itself is nonbinding, and Uber will appeal the ruling, which could takes years in court to resolve, and only applies to this individual instance and not to Uber drivers in general. But it signals a larger shift among state and municipal governments, and could serve as a precedent for future rulings.

If Uber is forced to treat its drivers as employees, the company would have to resort to some combination of hiked fares, reduced wages, and lower profits.

As far as interpretations of labor statutes go, the decision is likely not influential in itself.

“If the reasoning and factual findings are compelling, this may well influence a court. Otherwise, it will have no effect whatever or at most a negligible one,” wrote George Grellas, a business lawyer based in Silicon Valley. “What all this means is that this ruling has basically symbolic importance only, representing what state regulators might want as an idealized outcome. Its potential to shape or influence what might ultimately happen in court is, in my view, basically negligible.”

Uber—and other app-based service companies like Homejoy, Postmates, and its competitor Lyft—has been long criticized for exploiting its drivers by labor advocates, who celebrate the ruling as a step forward in protecting workers’ rights.

Opponents of the ruling argue that forcing Uber to treat drivers as employees will only reduce the number of jobs Uber provides, and give it further incentive to switch sooner to automation—that is, self-driving taxis.