California’s labor commissioner said an Uber Technologies Inc. driver who connects with customers through the company’s app must be considered an employee, a decision that strikes at the heart of its business model.

San Francisco-based Uber, like other “sharing economy” startups, has built a business around a flexible car fleet piloted by people it contends are independent contractors. If Uber’s drivers were treated as employees, the company would be required to guarantee them a minimum wage, compensate them for mileage and pay into social security.

“We see this as a problem that’s growing larger with each year, with employees lacking security and even basic rights when they are treated as independent contractors,” said Steve Smith, spokesman for the California Labor Federation, which has backed tougher regulations on ridesharing companies.

Read More.