A San Francisco-based driver for smartphone-based ride-hailing service Uber is an employee, not a contractor, according to a ruling by the California Labor Commission.
The ruling, filed on Tuesday in state court in San Francisco, was the latest in a host of legal and regulatory challenges facing Uber and other highly valued start-ups in the United States and other countries.
The commission said Uber is "involved in every aspect of the operation."
Classifying Uber drivers as employees opens the company up to considerably higher costs, including Social Security, workers’ compensation and unemployment insurance. That could affect its valuation, currently above $40 billion, and the valuation of other companies that rely on large networks of individuals to provide rides, clean houses and other services.
Uber had argued that its drivers are independent contractors, not employees, and that it is "nothing more than a neutral technology platform."
But the commission said Uber controls the tools driver use, monitors their approval ratings and terminates their access to the system if their ratings fall below 4.6 stars.
The ruling affects only California. However, the state is Uber's home base, one of its largest markets, and sets a path often followed by regulators and courts in other states.
Uber did not immediately respond to a request for comment. It likely will not have to start paying any additional costs unless it loses on appeal, and only after it exhausts its appeals.
The commission was ruling on an appeal by Uber of a labor commissioner's award of about $4,000 in expenses to San Francisco-based driver Barbara Ann Berwick, who filed her claim in September. She worked as an Uber driver for just over two months last year.
Earlier this month, Uber lost a bid to force arbitration in a federal lawsuit brought in San Francisco by its drivers. Earlier this year, the same court rejected Uber's bid to deem its drivers independent contractors, saying a jury would rule on their status.
In Florida, a state agency ruled earlier this year that Uber drivers are employees.