The upstart company Uber has been putting massive pressure on taxi cab companies everywhere. Uber functions using an innovative business modelin which individual drivers work as contractors and use their own cars as transportation. Uber is also an application based services, making it often easier to use and more convenient than standard taxi cabs. Unfortunately for Uber, their business model may be coming under attack.
The California Court Decision
One month ago, The California Employment Development Department came to the decision that a former driver for Uber served as an employee, rather than a contractor. They came to this decision based on the fact that Uber controlled “every aspect” of the driver’s daily work and maintained the right to terminate the driver at will. The ruling forced Uber to pay the driver unemployment benefits, which the driver would have been ineligible for if he had been a contractor.
Uber seemed unfazed by the ruling. The company issued a statement through a spokeswoman that said:
“This decision applied to one person — it does not have any wider impact or set any formal or binding precedent. Many public bodies have found that individual driver partners are independent contractors, including unemployment and labor departments.”
The company seems confident that it will continue to be able to categorize its drivers as contractors, rather than as employees.
Pros and Cons: Contractor vs Employee
Uber’s business model is built upon the fact that it can hire its drivers as contractors. Contractors are not granted the same benefits as employees. This makes it cheaper to use contractors;however, companies have less control over contractors. Uber states this as one of the benefits for drivers, as Uber drivers have absolute freedom to make their own schedule, and work as much or as little as they want. Future court rulings could have a massive impact on the future of transportation.