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Uber's 3.9 million drivers are a major risk to the company's bottom line

Brian Sozzi
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Judging by Uber’s stock (UBER) still trading below its $45 initial public offering price, investors haven’t forgotten about one major risk to the ride-hailing giant’s very existence.

That is what happens to Uber’s bottom line and cash flow statement should some 3.9 million drivers be forced by state governments to be classified as full-time employees as opposed to independent contractors. If they are considered to be employees, it could materially raise Uber’s costs as it pays out a variety of benefits inherent to being a staffer.

Uber made such a risk quite clear in its prospectus, which was dropped ahead of its headline-grabbing IPO in May.

Tusk Ventures CEO Bradley Tusk, Uber’s first public policy advisor hired by founder Travis Kalanick in 2015, says the company hasn’t made a mistake by not classifying its drivers as employees.

“I think that is an issue where both sides are taking an extreme position and the reality is somewhere in between,” Tusk said on Yahoo Finance’s The First Trade. “If you are, say a New York City Uber driver and you are working 70 hours a week you are clearly a full-time employee and to think otherwise is ridiculous. If you are a college student or senior citizen driving 12 hours a week, you are clearly not a full-time employee.”

States will decide status of Uber drivers

“I think the issue will shake out state by state,” Tusk added. “So, like everything it comes down to local politics.”

So far, that state-by-state approach to assessing gig economy workers Tusk mentions has unfolded.

New York City passed minimum wage laws for drivers late last year. Similar efforts by lawmakers are underway in parts of California. Meanwhile, the National Labor Relations Board ruled in May Uber drivers are independent contractors.

Wall Street has continued to warn investors over the regulatory risks associated with Uber and Lyft.

“Transportation services are comparatively new and laws are still forming. Regulations could affect Uber by prohibiting operations; imposing minimum rates; limiting the number of drivers, bikes, and scooters on the road; and/or reclassifying drivers as employees,” wrote Raymond James analyst Justin Patterson in a note to clients.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

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