Uber suffered a major legal setback on Tuesday when a San Francisco judge ruled that the jobs of Uber drivers in California are similar enough that workers can sue the company as a class.
The class-action status means that many of California’s 160,000 current and former Uber drivers could be reclassified as employees of the company, rather than independent contractors, if the lawsuit prevails.
Should Uber lose the case, it could potentially upend the business model that has turned Uber into one of the world’s most valuable private tech companies, with a whopping $51 billion valuation. And it would send shock waves across a broad spectrum of richly-valued “sharing economy” startups that rely on independent contractor to keep costs low.
A wholesale change from contractors to employees could cost Uber tens of millions of dollars – or more, according to some estimates.
In today’s decision, Judge Edward Chen wrote that the plaintiffs had “met their burden to show that a class can be certified on both the threshold employment classification question and their claim for converted tips.”
However, Chen did not certify a class that could recoup reimbursements if the drivers are determined to be employees. The plaintiff’s attorney, Shannon Liss-Riordan, had argued that reimbursing mileage alone would be sufficient for drivers, but Chen found that it was unclear if that was in the best interests of a class of Uber drivers since many also pay for expenses like gum or water bottles.
The 1099 debate
Currently, Uber drivers are so-called “1099” independent contractors, called that because of the 1099 IRS form they fill out. Because they’re not employees of the company, they do not receive certain benefits, like overtime pay or reimbursement for expenses like gas or mileage.
Three former Uber drivers brought a misclassification suit against the ride-hailing company in 2013, claiming that its 160,000 drivers in California should be classified as employees.
Class-action status doesn’t mean Uber’s drivers are employees or entitled to tips – that’s still left for a jury to decide in a hearing that is likely many months out.
“Should the jury determine that the class members here are not Uber’s employees, this class action will have reached its end. Should the jury determine they are Uber’s employees, as discussed in greater detail below, they are likely to be entitled to relief as a class at least with respect to the California Tips law,” Chen wrote.
Today’s ruling means the case can proceed on behalf of any driver who meets the class certification as defined below:
All Uber Black, UberX, and Uber SUV drivers who have driven for Uber in the state of California at any time since August 16, 2009, and who (1) signed up to drive directly with Uber or an Uber subsidiary under their individual name, and (2) are/were paid by Uber or an Uber subsidiary directly and in their individual name, and (3) did not electronically accept any contract with Uber or one of Uber’s subsidiaries which contains the notice and opt-out provisions previously ordered by this Court (including those contracts listed in the Appendix to this Order), unless the driver timely opted-out of that contract’s arbitration agreement.
Any driver who signed up after June 2014 and signed a contract with an arbitration clause would not be eligible unless they are part of a small number of drivers who opted out. Drivers who contracted through another company are also ineligible.
- REUTERS/Eduardo Munoz
An Uber spokeswoman, although happy with the smaller class size, said the ride-hailing company plans to appeal.
“While we are not surprised by this Court’s ruling, we are pleased that it has decided to certify only a tiny fraction of the class that the plaintiffs were seeking. Indeed one of the three named plaintiffs will not qualify. That said, we’ll most likely appeal the decision as partners use Uber on their own terms, and there really is no typical driver–the key question at issue.”
Liss-Riordan, the plaintiff’s lawyer, declared that it was a “major victory” for Uber drivers and encouraged those who are bound by the 2014 arbitration clause to contact her for other legal representation.
“In sum, this decision is a major victory for Uber drivers. It will allow thousands of Uber drivers to participate in this case to challenge their misclassification as independent contractors, as well as to attempt to recover the tips that Uber advertised to customers are included in the fare, but are not in fact distributed to the drivers,” Liss-Riordan wrote in a e-mail to Business Insider.
“No typical Uber driver”
Uber’s six-year-old ride-hailing service has become increasingly popular with consumers and investors, and has emerged as a serious threat to the taxi industry. Uber’s model of employing contractors has allowed it to quickly expand to 60 countries. But taxi operators complain (and at times protest) that Uber has an unfair advantage because it is not bound by the same regulations as they are.
- REUTERS/Robert Galbraith
One of Uber’s arguments against class action status for its drivers was that there is “no typical driver.” The ride-hailing company used 17 different contracts to sign up drivers. Some Uber drivers sign up directly with the company and others are subcontractors working for larger transportation companies. Many Uber drivers only drive a few hours a week while others work more than 40.
Judge Chen dismissed Uber’s argument in its entirety by granting class status. The company’s legal differences between drivers are not so large that they can’t be treated as one class, Chen wrote. Chen also humorously dismissed Uber’s “legally irrelevant” differences that the company highlighted during last month’s hearing.
“For example, the named Plaintiffs may all be left-handed and drive Hondas, while numerous class members are right-handed and drive Toyotas,” Chen wrote.
Chen also dismissed the studies and testimonials provided by Uber because they were too small of a percentage of the proposed class size of 160,000.
“First, while Uber claims that “countless drivers” hail the firm as a “liberator” from traditional employment, Uber has only submitted evidence of the beliefs of a small fraction of its California drivers: 400 out of 160,000 (i.e., 0.25%). Notably, even out of these 400 declarations, Uber identified only about 150 where the driver actually stated that she prefers to remain an independent contractor,” Chen wrote.