Uber's Classification Case Could Cost the Company 10% of Profits

Wednesday, July 15, 2015 | 3

(image via Uber)

In preparation for its Aug. 6 court date, Uber has filed a motion for the court to dismiss a class-action lawsuit in the wake of the California Labor Commission's decision that the company’s drivers are employees, not independent contractors.

The motion argued that the three drivers in the case don’t represent all the interests of Uber contractors and makes a wide claim in the beginning of the case saying many, “if not most,” drivers oppose being classified as employees. The company used statements from 400 California drivers to support its arguments.

Classification as employees, Uber argued, threatens to “destroy the very independence and flexibility that countless drivers love about Uber,” lawyers for the company wrote. 

The ruling could make a major dent in Uber’s profits by nearly 10%, according to the tech news website ReCode, by impacting how much Uber has to spend on drivers, which currently is nothing. The company doesn’t pay for health insurance, workers’ compensation coverage or automobile repairs due to labeling their drivers as independent contractors. 

 ReCode calculated using public data and third-party administrators that Uber could expect to pay upwards of $4,700 per driver, or $209 million in California, alone, in insurance and payroll taxes. 

ReCode used AP Intego Insurance Group to speculate that Uber would likely pay 12% of each driver’s salary for workers’ compensation insurance. The total amount of drivers in California hasn’t been made public, but in a blog post published by the company, along with analytics provided through the third-party ride-share metrics company SherpaShare, the website estimated approximately 45,000 drivers in California making just over $400 a week. 

But the cost is in stark contrast to what investors are projecting Uber’s revenue to be within the next few years — between $50 and $100 billion, according to Business Insider columnist Henry Blodget. 

And the costs attached to reclassifying workers in California could go farther than paying for future insurance, taxes and repairs. FedEx announced on June 12 that the company’s lawsuit surrounding their classification of workers resulted in a $228 million settlement that is still being negotiated in court. That settlement was made to issue backpay and benefits the company had not given to former contractors.