The California Uber class action (O’Connor v. Uber Technologies, Inc., No. C-13-3826, N.D. Cal.) was in the news again this week when Judge Edward M. Chen allowed California Uber drivers suing Uber for their tips and expenses to do so as a class. This will likely turn out to be a major loss for Uber, because proceeding as a class allows all drivers within the class, even those who have not actively chosen to sue Uber, to speak with one collective voice.

Important as it was, this most recent development was expected and not entirely interesting from a labor law perspective. A more critical hurdle was passed in March, when the court decided that it could not throw out the lawsuit on the argument that Uber drivers must be independent contractors, not employees, and thus not entitled to tips and reimbursement of their expenses. O’Connor v. Uber Technologies, Inc., 82 F. Supp. 3d 1133 (N.D. Cal. 2015). In California, when a person performs work and labor for an employer, courts presume that the person is an employee until the alleged employer comes forward with evidence showing otherwise. Lab. Code § 3357; Narayan v. EGL, Inc., 616 F.3d 895, 900 (9th Cir. 2010). The Internet-based “sharing economy” provided Uber with an apparent loophole: it argued that it was a technology company in the business of matching up rides with riders, and since drivers provide no services to Uber in this regard, the employee presumption never arises. Ergo, not employees.

It was a clever argument, but maybe too clever. The court pointed out that Uber’s business model is not based on selling technology – its app is free – but on providing transportation. Just because it uses new-fangled technology to do so doesn’t make it a technology company any more than a traditional taxi company that uses CB radios to match cabs with passengers.

An important indicator to the court that Uber’s supposedly innovative business model is more semantics than substance is the fact that “Uber simply would not be a viable business entity without its drivers.” No matter how hands-off Uber tries to be matching up riders to rides, the simple fact that Uber would have no revenue at all if not for the drivers giving rides proves that drivers provide a service to Uber.

What if Uber had simply charged a flat fee to drivers in return for the service of providing them with customers? The court noted that the question had come up before, with an old-economy taxi cab company that charged a flat fee-per-shift to drivers for providing “leads” by CB radio and the use of its cabs. Yellow Cab Coop., Inc. v. Workers’ Comp. Appeals Bd., 277 Cal. Rptr. 434 (Cal. App. 1st Dist. 1991). That argument didn’t work back in 1991 either, because the drivers provided an “indispensable ‘service’” to the cab company, which was dependent on them to survive. Id. Most things a business relies on are by definition indispensable in some way, but where things central to a company’s business model are the fruits of a person’s labor, tricks of logic won’t be enough to persuade a court that no services were given.

The court’s ruling is particularly significant due to the enactment of California’s Labor Code section 226.8 in 2011, which created civil penalties for willful misclassification in order to combat the ever-growing trend of employers skirting labor protections by calling employees independent contractors. In June, an appellate court ruled that employees may collect a portion of those penalties under California’s Private Attorney Generals Act. Noe v. Super. Ct., 237 Cal. App. 4th 316 (2015) (applying Lab. Code § 2698 et seq.). Yet the line between employee and independent contractor is still a difficult one to draw – though perhaps slightly easier now for some workers thanks to the Uber ruling. Whether you are a possible employee or possible employer, in the “sharing economy” or the old selfish economy, if you have questions on this difficult question, give us a call.