Small Business

Uber dealt another blow in labor ruling

Legal hurdles for Uber in Cali
Legal hurdles for Uber in Cali

In an ongoing battle over whether Uber drivers are employees or independent contractors, the ride-hailing company just took another hit. This comes after a decision last week that granted Uber drivers class-action status in a larger case, which stands to greatly impact how Uber and other sharing economy companies operate, as they rely heavily on the independent contractor model.

The California Employment Development Department determined that a former driver in the state is an employee and not an independent contractor. Reuters first reported the news (the decision came in August) but was unveiled this week via documents posted online.

Stage set for legal showdown over Uber drivers
Stage set for legal showdown over Uber drivers

Unlike last week's ruling in a San Francisco federal court, which could have a class size of less than 15,000, it applies to one driver.

Read MoreUber drivers' suit given class-action status

"It does not have any wider impact or set any formal or binding precedent." an Uber representative said by email. "Many public bodies have found that individual driver partners are independent contractors, including unemployment and labor departments in IN, GA, PA, CO, TX, IL, NY and CA."

Similar single-driver "employee" rulings have been found in both California and Florida this year.

"The on-demand economy is under threat as regulators and politicians continue to pressure the tech start-ups to convert workers to full-time employees—or offer more benefits," said Jeremiah Owyang, founder at San Francisco-based Crowd Companies, which analyzes the sharing economy, noting that start-ups like Shyp and Instacart have made moves in recent months to convert some independent contractors to employee status. "This conversion to employee hasn't always gone well for (the) start-up. It can raise costs of business, and shuttered start-ups like Zirtual and Homejoy have cited that these pressures break the very business model."

The Uber labor news comes as The Wall Street Journal reported a new partnership between Uber's biggest Chinese ride-hailing rival: Didi Kuaidi reportedly invested Uber's biggest U.S. competitor, Lyft. The report said the funding round closed in May, and that Didi Kuaidi invested alongside big Chinese Internet companies Alibaba and Tencent Holdings, as well as billionaire investor Carl Icahn, as part of a funding round that values the company at $2.5 billion.

In an email, Lyft declined to comment on "speculation."

Read MoreStage set for legal showdown over Uber drivers