By Niki Cervantes
Staff Writer

June 18, 2015 -- Uber, the internationally popular ride-sharing service that is far from popular with Santa Monica officials upset with its business practices, has been dealt a major blow by the California Labor Commission.

Acting in a case involving a former San Francisco Uber driver, the state commission’s office ruled the Uber drivers are employees, not contractors – a setback that could have major financial ramifications if upheld by the courts.

The initial ruling was in March but didn’t come to light until Uber filed a notice of appeal Tuesday.

Uber, a smartphone upstart that has upended the traditional taxi cab business, classifies its drivers as contractors, not employees. It requires them to pay expenses, a practice that differs from taxi and limousine services, which directly employ drivers and own or maintain the vehicles used by the drivers.

Classifying Uber drivers as employees means Uber would be required to pay such standard costs as Social Security, workers’ compensation and unemployment. Its valuation, currently above $40 billion, could also drop, according to reports.

Santa Monica officials are not big fans of Uber, which they say relentlessly circles the city in search of fares -- wasting gas, causing congestion and damaging the environment.

 Mayor Kevin McKeown has been particularly outspoken.

“As I pointed out at a recent Council hearing, the Uber practice of giving drivers financial incentive to circle our downtown endlessly -- hoping to be closest to a lucrative passenger -- was counter to our sustainability goals and represented corporate irresponsibility,” McKeown said in an email to the Lookout Wednesday.

The mayor said he hopes the ruling will force Uber “into accountability” and that the company would no longer be able to claim that “Uber-increased traffic congestion and air pollution are not their problem, which they must address,” he said.

A staff report to the City Council in February showed taxicab trips went down 27 percent from 2013 to 2014 and attributed the decline to the sudden proliferation of contract drivers for Uber and Lyft, another app-based service.

“It’s like a plague has taken over,” Santa Monica taxi driver Gayle Shankle told the Council during a public hearing.

City officials were also upset when they learned at a public hearing that contractors for Uber routinely cruise Downtown Santa Monica when not carrying passengers. Council members unanimously rejected a proposal for Uber and Lyft cars to be allowed to sit on Santa Monica curbs.

In a statement responding to the labor commission decision, Uber said the ruling “is non-binding and applies to a single driver. Officials contend it also is contrary to a previous ruling by the same commission, which concluded in 2012 that the driver “performed services as an independent contractor, and not as a bona fide employee.”

The statement also said five other states had come to the same conclusion.

“It’s important to remember that the number one reason drivers choose to use Uber is because they have complete flexibility and control,” Uber officials wrote.

“The majority of them can and do choose to earn their living from multiple sources, including other ride sharing companies. We have appealed this ruling”

The ruling ordered Uber to pay the former driver involved, Barbara Ann Berwick, $4,152.20 in expenses and other costs for the period she worked as a driver.