How a Florida fender-bender could threaten Uber's business model

A Miami auto-accident threatens to upend the business model of Uber, along with many of its competitors and similar services in the sharing economy.

Uber car accident Florida insurance claim employee contractor

A March collision between a Mitsubishi Outlander and a scooter in the Miami area could have huge repercussions in Silicon Valley.

According to reports in Buzzfeed and elsewhere, the minor accident caused only a few thousand dollars in damages. But it could have a nationwide impact on the business models of ridesharing and other app-driven services.

Because the SUV was dropping off Uber passengers at the time, the driver asked the company's insurance to cover the costs. But Uber and the driver couldn't come to an agreement, so—unable to keep driving until the vehicle was fixed or replaced—Darrin McGillis ended up filing an unemployment insurance claim against Uber and a subsidiary. That forced the Florida Department of Economic Opportunity to determine whether the driver was actually an employee of Uber, not an independent contractor, as the company claims. Last week, the Florida DEO's initial determination held that McGillis was indeed an employee, not a contractor.

If that determination holds up—Uber has 20 days to appeal and has said it will do so—it could set a precedent that might wreak havoc with the company's business model of subcontracting tasks rather than hiring employees.

According to the Miami Herald, the company claims to have "successfully overturned similar administrative actions in other states," but this latest incident seems pretty clear cut.

Legal gray areas

Of course, Uber is far from the only company to rely on contractors: many app-based companies, from ride-sharing services like Lyft to delivery-and-odd-job outfits like Postmates and TaskRabbit, go this route to reduce overhead and boost flexibility. So do plenty of old-line companies, include package delivery services. While some workers appreciate the flexibility, others want the perks and tax benefits of being an employee.

Similarly, while the IRS has strict rules about how workers must be classified, they've always been difficult to interpret, leading to ongoing, high-stakes battles. The new app economy adds even more gray areas and uncertainty to the question, but the behavioral aspect of the IRS' definition of an independent contractor includes this question: "Does the company control or have the right to control what the worker does and how the worker does his or her job?" Uber, at least, is notorious for demanding that its "contractors" follow specific sets of rules and guidelines.

I'm not a lawyer, but…

This particular case, while dramatic, is only one of a variety of legal issues dogging Uber and companies like it. But it's potentially among the most disruptive. Many online companies have achieved dizzying valuations based in large part on not having to take on the people who actually provide the services "sold" on the app as employees. Doing so could severely affect their ability to quickly scale and put huge dents in their bottom lines.

The employee vs. independent contractor debate will likely take a long time to resolve. The courts and other government agencies move a lot slower than internet companies do. But while I'm no lawyer (nor lobbyist), it seems to me that unless the rules are changed, many of the workers currently claimed as independent contractors will eventually have to be reclassified as employees.

That would be a whole lot of damage from a single fender bender.

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