Labor Commission Rules Against Uber Business Startup Model

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Business Formation & Planning on Monday, June 22, 2015.

Carefully planning a business model is an important part of starting up a new enterprise. This can help a business startup ensure compliance with rules and regulations applicable to its industry. However, one must be careful since the law may not be exactly clear regarding many aspects of certain new and emerging industries in California. This can result in future legal problems for a company.

It appears this is what happened to Uber Technologies recently in a ruling by the California Labor Commission. The ruling had to do with the fact that Uber had been classifying its drivers as independent contractors. One driver ended up filing a complaint with the commission, which ruled in the driver's favor. The commission ruled that the driver was actually legally an employee of Uber and not an independent contractor.

This recent ruling in California could increase costs significantly for Uber if other states begin to make rulings in similar fashion. The company is currently valued at $40 billion and operates all across the country. Uber had been forcing drivers to absorb most of the business expenses by labeling them independent contractors instead of employees. The company will now have to pay for significantly more costs such as workers' compensation and Social Security.

This case illustrates how important it is to be aware of the potential legal risks when forming a business startup with a more experimental business model in California. There may be some aspects of compliance that have yet to be decided by the courts. Therefore, a business owner will want to understand the legal arguments underlying some of the reasons a company may be found to be in violation of applicable rules and regulations.

Source: USA Today, "California ruling challenges Uber business model", Kaja Whitehouse, June 17, 2015

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