Uber’s business model is on the rocks late Tuesday after a federal judge granted class-action status to a lawsuit targeting the company’s treatment of drivers as independent contractors.
The case is one of several high-profile suits brought by drivers against the technology start-up that has displaced traditional taxis in many markets. A California labor board ruled against the company in a separate but similar case earlier this summer, in an administrative decision that does not bind the courts but outlined some weaknesses in Uber’s legal argument.
Now those weaknesses will face a test with much higher stakes — though just how high is a matter of dispute. The plaintiffs wanted the court to include 160,000 drivers in the class as party to the current lawsuit alleging that drivers are full employees of Uber with full labor law protections, rather than independent contractors. Tuesday’s order places some restrictions on the class, and it’s unclear how many of those 160,000 drivers will ultimately be part of the suit. Uber believes “only a tiny fraction of the class” will be eligible, a spokesperson wrote in an email, though Tuesday’s ruling leaves the door open for arguments to expand the class.
Any person who drove for Uber in California since mid-August 2009, worked directly for Uber rather than contracting with the company through a third party, and is not subject to a binding arbitration clause in her contract with the company will be considered part of the case. Uber thinks that will be fewer than 15,000 drivers — in large part because it revised its binding arbitration contract language in 2014 at the behest of the same court, and believes that “most of the growth in driver numbers has happened since then.” It is unclear how many drivers opted out of the arbitration clause when they signed their contracts.
In an email, an Uber spokesperson said the company will “most likely appeal the decision as partners use Uber on their own terms, and there really is no typical driver.”
But the company’s attempt to persuade Judge Edward Chen that there’s no such thing as a typical Uber driver did not go well. Uber argued that its relationships with drivers vary too much from individual to individual for the court to treat all its drivers as one class, and to consider whether they are employees or contractors collectively.
But Judge Chen notes that “there is inherent tension between this argument and Uber’s position on the merits” because Uber itself has treated the drivers as a uniform class by deeming every one of them to be a contractor. “Despite Uber’s argument to the contrary, there are numerous legally significant questions in this litigation that will have answers common to each class member that are apt to drive the resolution of the litigation,” Chen wrote.
Class certification does not mean that drivers have won. A jury trial will still determine whether Uber drivers meet the legal definition of employees – in which case the company would owe massive amounts of back pay to all eligible drivers – or not. And Chen did not give the drivers everything they wanted. The judge rejected class status for drivers’ claims involving Uber policy around reimbursing expenses like gas, tolls, and the cost involved in a canceled fare.
Misclassifying workers as contractors can save a company thousands of dollars per head per year. But the practice has come under increasing scrutiny in recent years, with multiple courts ruling in favor of workers in a class-action case against FedEx that involves similar disputes.
Uber was eager to avoid class-action status in this case. Previously, it has only had to grapple with driver misclassification claims as individual matters. In the case of Barbara Ann Berwick, for example, Uber lost the argument but only had to pay Berwick about $4,000.
The cost of paying back wages and payroll taxes for the class Chen certified Tuesday, while certainly smaller than the $50 billion that the company is currently worth according to investors, would be vast — especially if plaintiffs’ attorneys accept Chen’s invitation to make further arguments about including other drivers in the class, and succeed.
And perhaps more importantly, having a giant chunk of its driver base collectively re-classified as employees would chip away at the company’s reputation for disrupting the taxicab business. Uber would start to look like any other company that hires workers to drive fares around for tips and wages under the normal protections of employment law.
This post has been updated to include comment from Uber and clarify the impact of Tuesday’s ruling.