Another taxi for Uber as drivers challenge business model
Uber suffered a major legal setback this week 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” start-ups 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.