California ruling seen unlikely to dent value of Uber, other start-ups

Mon Jun 22, 2015 10:20am EDT
 
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By Sarah McBride

(Reuters) - A California ruling requiring Uber to classify a San Francisco-based driver as an employee instead of an independent contractor could potentially change how sharing-economy companies operate, but it is unlikely to dent their value, investors said.

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.   Continued...

 
The Uber logo is seen on a vehicle near Union Square in San Francisco, California in this May 7, 2015 file photo.   REUTERS/Robert Galbraith