Uber drivers are independent contractors, not employees, says National Labor Relations Board

• The National Labor Relations Board released a memo saying Uber drivers are independent contractors, not employees.
• Drivers and activists dispute the classification, arguing they aren't afforded the freedoms that contractors have.
• The memo was released after Uber's disappointing initial public offering last week.

The National Labor Relations Board on Tuesday made public its opinion that Uber drivers should be classified as independent contractors versus full-time employees who are eligible for benefits and other protections. Labor activists called it a "bogus" decision that does not reflect the true nature of drivers' obligations to the ride-hail giant, which went public last week.

Uber, which lost $3 billion in 2018 alone, operates on a business model that hinges on drivers being classified as independent contractors, absolving the company of the employer healthcare, pension and other benefits costs that would be associated with employing millions of drivers.

The NLRB's memo, written last month and released Tuesday, said that Uber drivers are afforded "significant entrepreneurial opportunity by virtue of their near complete control of their cars and work schedules, together with freedom to choose log-in locations and to work for competitors of Uber."

The letter stated that "these and other facts strongly support independent-contractor status and outweigh all countervailing facts supporting employee status."

It also cited drivers' ability to toggle between Uber and competitor Lyft to fulfill ride requests, and their freedom to pursue entirely unrelated ventures instead, as features that afford drivers "entrepreneurial independence." 

Drivers for Uber and other ride-hail services have organized under the New York Taxi Workers Alliance and other labor groups to protest what they consider to be an unfair classification that strips them of benefits and protections afforded to employees.

Inder Parmar, 54, a former black-car driver turned Uber contractor, said he is so beholden to his job as an app driver that he always has his eyes on his cell phone screen -- including when he uses the bathroom. 

"We have to hold the phone in front of us to see when a job is coming," he said. "We do not have any authority to refuse the job. If we refuse too many jobs, we can be fired. They call it 'de-activation,' we call it getting fired."

Parmar, who has worked as an Uber driver since 2013, said he feels like he is "on-call" from the moment he steps into his vehicle in the morning. He says he'd seek a different kind of employment -- if only he hadn't sunk $70,000 on his vehicle and related expenses so he could working as a ride-hail driver. 

"I invested $70,000 in this business and if Uber tells me to get out, I have a liability of that much, and Uber has a liability of zero dollars," he said. "That's why I am stuck, and the same is true for all of Uber's 3 million drivers. Same goes for drivers who lease their cars -- they have to make enough money to pay for the lease."

NYTWA founder and executive director Bhairavi Desai called the NLRB's opinion "completely bogus."

"Uber and Lyft directly dispatch trips, control the rate of the fare, and fire you at will. These are all classic employer control. Drivers have barely any control and have barely any protection and that's why millions of them have been left with poverty wages," she said. 

Laura Padin, senior staff attorney with the National Employment Law Project, said the business-friendly NLRB neglected the fact that Uber exercises undue influence over drivers by using tactics like surge pricing. 

"Uber drivers are not running their own business, which is what it means to be an independent contractor. Uber drivers do not set their own rates; they do not choose their customers. They are not making investments in a business; they are performing the core work of Uber," Padin said in a statement to CBS MoneyWatch. 

Uber went public last week in what was widely considered to be a disappointing initial public offering, reflecting investors' concern over if and when the company will ever become profitable. The stock closed 7.6% below its $45 IPO price on the first day of trading, and dropped another 11% Monday, closing $37.10. Uber CEO Dara Khosrowshahi even acknowledged the stock's dismal performance in a note to staff Monday.

"Like all periods of transition, there are ups and downs. Obviously our stock did not trade as well as we had hoped post-IPO. Today is another tough day in the market, and I expect the same as it relates to our stock," Khosrowshahi wrote. 

The NLRB's opinion won't likely allay investor concerns. 

"The sheen has come off its visions of [autonomous vehicles] and some other dreams that I think buoyed the company's historic valuation," said Anand Sanwal, CB Insights CEO and co-founder. "I think people are re-setting their expectations a bit." 

Uber on Tuesday said it would continue to work on improving its relationship with drivers. "We are focused on improving the quality and security of independent work, while preserving the flexibility drivers and couriers tell us they value," an Uber spokesperson told CBS MoneyWatch.