The California Labor Commission has ruled that an Uber driver is indeed an employee -- a move that could seriously undermine the company's business model.
The ruling, brought to light Tuesday by an Uber appeal, was in response to a complaint filed by one of its San Francisco drivers over unreimbursed expenses.
The commission awarded over $4,000 to the driver -- Barbara Ann Berwick. It said she was entitled to mileage and toll expenses for employees who use their personal cars for work, according to court documents filed at the Superior Court of California in San Francisco.
The ruling, if upheld, could pave the way for Uber to have to pay Social Security, healthcare and other expensive benefits. Nationwide, the company has 160,000 drivers, and if a precedent is set, it could eat into Uber's profits.
"Uber has made a killing by deferring all its expenses to its employees," said Shannon Liss-Riordan, a labor lawyer who's representing Uber drivers in a separate class action lawsuit. "This ruling could be significant to our case."
Uber argued that it is merely a platform that facilitates a transaction and that Berwick was an independent contractor, and therefore entitled to no such compensation.
The Labor Commission sided with Berwick, noting that Uber vets the drivers, dictates what types of cars they can use and controls the payments, among other things.
"[The] defendants are involved in every aspect of the operation," the Labor Commission said in its decision, made in March. "Aside from the car, Plaintiff had no investment in the business. Plaintiff was Defendants' employee."
In a statement, Uber said this ruling is contrary to a previous ruling from the same commission, which said its drivers are independent contractors. It added that five other states have made similar determinations.
"Drivers ... have complete flexibility and control," said the statement. "The majority of them can and do choose to earn their living from multiple sources, including other ride-sharing companies."
If upheld, the ruling could also call into question the business model of other companies that facilitate transactions in the so-called sharing economy, including other ride-sharing apps like Lyft and cleaning services like Homejoy.
Uber, a privately held company, has seen explosive growth over the last few years. It was recently valued at $50 billion dollars.