Despite its mass appeal and outstanding business prospects1, ridesharing platform Uber continues to face regulatory and legal hurdles that threaten to upend its business model. In this blog, I offer a primer of the most significant challenge Uber faces in the United States, a class action battle against their drivers.
Unlike traditional taxicab companies which hire drivers based on a commercial license or “medallion” system and lease vehicles provided by the company, Uber contracts with each of its drivers privately.2 Uber-affiliated drivers use their own vehicles, pick up their own passengers, and determine their own schedules.3 Yet, the drivers must still comply with various performance standards set by the company.4 For example, drivers undergo company-specific training, are subject to at-will termination and/or investigation, and must log their hours with the company.5
These practices have triggered scrutiny and pushback from the drivers under traditional employment law doctrine. The most noteworthy of the lawsuits was brought in late 2014 in the Federal District Court for the Northern District of California by four Uber drivers from San Francisco, Los Angeles, and San Diego.6 In the lawsuit, the drivers claim that they are employees of Uber, rather than independent contractors.7 They contend that the level of control Uber exercises over their work is more in line with an employer-employee relationship.8 Meanwhile, Uber argues that it owns no vehicles, employs no drivers, and points to various “Transportation Provider Service Agreements” in which the drivers “expressly agree that this Agreement is not an employment agreement or employment relationship.”9.
This difference in classification has important implications for Uber’s business model. Uber has few, if any, legal obligations to its drivers if they are classified by law as independent contractors. That is because independent contractors lack most of the protections that employment laws offer, such as health insurance, wage protections, and unemployment benefits.10. If the drivers were ruled to be employees, however, they may be entitled to these benefits, among others like full payments for gratuity, and reimbursements for gas, vehicle maintenance, and car insurance. With more than 160,000 active drivers on the road,11 these costs could explode, potentially costing the company millions of dollars.
The current status of the lawsuit is a cause for concern to Uber, with the company on the losing end of two key motions. First, on March 11, 2015, Judge Edward Chen denied Uber’s motion for summary judgment.12. In his 27-page order, he rejected Uber’s contention that it was not a “transportation company,” but rather a pure “technology company,” a distinction which would have rendered the drivers mere “Uber customers who buy dispatches that may or may not result in actual rides” instead of employees.13 To this point, Chen noted that, “Uber’s revenues do not depend on the distribution of its software, but on the generation of rides by its drivers.”14 Finding, inter alia, that Uber “exercises significant control” over the qualification and selection of its drivers, as well as the amount of revenue it earns by unilaterally setting fares, Chen ruled that the drivers are Uber’s presumptive employees because they provide a service to the company.15 The burden now lies on Uber to disprove the employment relationship at trial.16
The drivers won another important legal battle on December 9, 2015, when Chen issued a final order certifying the case as a class action. In September 2015, Chen ruled in favor of the drivers on a class-certification motion—a major victory on its own—but limited claims to only tip reimbursements by Uber drivers from the state of California who have driven for the company since 2009.17 He notably excluded claims for related expenses including gas, vehicle maintenance, and insurance,18 as well as claims from drivers bound by an arbitration clause, which began appearing in Uber’s service agreements in 2014.19 The December order, however, expanded the initial class by permitting those drivers bound by the 2014 arbitration clause to join the lawsuit nonetheless.20 Uber stated that Chen’s most recent order could add more than 100,000 drivers to the class.21 Additionally, drivers will be permitted to seek the above-mentioned related expenses in addition to tip reimbursements.
Absent an out of court settlement—which remains a viable option, as evidenced by Lyft’s recent settlement in a similar lawsuit in California22—the class action lawsuit against Uber will proceed to trial. No trial date has been set, but this will continue to be a closely watched case given rumors of a potential Uber IPO.23.
Myles Udland, Morgan Stanley’s Richest Clients Are Getting a Piece of Uber, Business Insider (Jan. 11, 2016) http://www.businessinsider.com/morgan-stanley-high-net-worth-clients-in-uber-funding-2016-1 (noting that Uber is currently valued at $62.5 billion) ↩
See Alina Artunian, Uber, Lyft, and the Employment Battle, RegBlog (Oct. 21, 2015) http://www.regblog.org/2015/10/21/artunian-uber-lyft-employment-battle/ ↩
See Complaint, O’Connor v. Uber Technologies, Inc., No. 13-CV-3826 (N.D. Cal. Nov. 17, 2014) ↩
Id. at 5. ↩
Order Denying Defendant Uber Technologies, Inc.’s Motion for Summary Judgment at 3, O’Connor v. Uber Technologies, Inc., No. 13-CV-3826 (N.D. Cal. Mar. 11, 2015) ↩
IRS, Employer’s Supplemental Tax Guide, Publication 15-A (2016) https://www.irs.gov/pub/irs-pdf/p15a.pdf; see also Hiroshi Motomura, Employees and Independent Contractors Under the National Labor Relations Act, 2 Berkeley J. Emp. & Lab. L. 278 (1977) ↩
Emily Badger, Now We Know How Many Drivers Uber Has – And Have a Better Idea of What They’re Making, Washington Post (Jan. 22, 2015) https://www.washingtonpost.com/news/wonk/wp/2015/01/22/now-we-know-many-drivers-uber-has-and-how-much-money-theyre-making%E2%80%8B/ ↩
Order Denying Defendant Uber Technologies, Inc.’s Motion for Summary Judgment, O’Connor v. Uber Technologies, Inc., No. 13-CV-3826 (N.D. Cal. Mar. 11, 2015) ↩
Id. at 9. ↩
Id. at 11. ↩
Id. at 15. ↩
Id. at 16; see also Yellow Cab Coop. Inc. v. Worker’s Comp. Appeals Bd., 226 Cal. App. 3d 1288, 1294 (1991) (explaining that under California law, “a service provider is presumed to be an employee unless the principal affirmatively proves otherwise.”) ↩
See Amended Order Granting In Part and Denying In Part Plaintiffs’ Motion for Class Certification, O’Connor v. Uber Technologies, Inc., No. 13-CV-3826 (N.D. Cal. Sept. 1, 2015) ↩
Id. at 29. ↩
Id. at 63-64. ↩
See Order Granting In Part and Denying In Part Plaintiffs’ Supplemental Motion for Class Certification, O’Connor v. Uber Technologies, Inc., No. 13-CV-3826 (N.D. Cal. Dec. 9, 2015) ↩
Defendant Uber Technologies, Inc.’s Notice of Motion and Expedited Motion to Stay Pending Appeal; Memorandum of Points and Authorities at 13, O’Connor v. Uber Technologies, Inc., No. 13-CV-3826 (N.D. Cal. Dec. 14, 2015) ↩
See Dan Levine & Heather Somervile, Lyft Settles Claifornia Driver Lawsuit Over Employment Status, Reuters (Jan. 27, 2016) http://www.reuters.com/article/us-lyft-drivers-settlement-idUSKCN0V50FR ↩
See Alex Barinka, Uber Is ‘Probably’ IPO Bound, But Don’t Hold Your Breath, Bloomberg (Dec. 17, 2015) http://www.bloomberg.com/news/articles/2015-12-17/uber-is-probably-ipo-bound-but-don-t-hold-your-breath ↩