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 If it holds up on appeal, the California Labor Commissioner's
decision, which came to light last week, may have a limited impact
on Uber and other companies that rely on networks of on-demand
workers.
That's because the benefits of treating workers as contractors
rather than employees are more important in a start-up's early days
and less so now that Uber and many similar companies have grown,
investors say.
Smaller companies need more flexible work forces and contractors
solve that problem. Larger companies with more predictable demand
for their products or services can benefit from having employees
scheduled to work regular shifts.
"If they had to change (to) that, it would be just fine," said an
Uber investor who declined to be identified due to sensitivity
around the ruling.
The expenses that would stem from classifying drivers as employees,
including paying workers’ compensation, Social Security and other
costs, could be offset to a large extent by the lower wages Uber
could pay to drivers compared with contractors, the investor argued.
"This problem can be routed around," said James McQuivey, an analyst
at Forrester Research who has studied the sharing economy for
several years and does not foresee any immediate hit to Uber's
valuation as a result of the ruling.
Uber is currently valued at more than $40 billion, making it the
most richly valued venture-backed company in the United States,
according to CB Insights.
One caveat: the Labor Commissioner’s Office awarded the driver
involved in the case, Barbara Ann Berwick - who said she drove for
Uber for nearly two months - around $4,000 for expenses such as
mileage and tolls.
Uber has appealed the ruling to a state court in California.
PACE-SETTER STATE
The company's chief executive, Travis Kalanick, said in a speech
earlier this month that in San Francisco alone Uber has 22,000
drivers.
The California ruling applies only to the one driver, but the state
often sets a path followed by regulators and courts elsewhere.
Uber and rival Lyft are facing separate lawsuits in federal court in
San Francisco that seek class-action status by drivers who say they
should be classified as employees.
If a court makes a sweeping ruling that allows workers to
retroactively claim expenses, that could result in a large hit. But
that would likely hurt valuations of weaker sharing-economy
companies more, investors said.
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Bigger, market-dominating start-ups with lots of cash on hand are
better positioned to handle such setbacks.
Smart investors are aware of the risks, said Jeremy Levine, a
venture capitalist at Bessemer Venture Partners, whose portfolio
includes several companies with on-demand labor pools.
"You never know how judges are going to rule, or how lawmakers are
going to think about this," he said.
But laws and regulations tend to gradually evolve in a direction
that benefits consumers, and because Uber and other sharing-economy
companies offer better value for their users, the rules likely will
adjust to accommodate them, he added.
He and others base their thinking on the history of start-ups that
operated in legal gray areas before the law evolved to encompass
them, including online-payments company PayPal and online
video-service YouTube.
Despite the optimism, words of caution emerged.
Forrester's McQuivey warned that Uber's valuation could suffer if
other regulators in important jurisdictions followed the lead of
this latest ruling.
And Bessemer's Levine said that when it came to the valuations of
sharing-economy start-ups and others, "We're nowhere near the fear
land now," but added, "As a litany of not- so-positive news happens,
we may see that shift."
(Editing by Stephen R. Trousdale, Leslie Adler and Eric Walsh)
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