Uber Just Lost A Legal Fight That Could Transform The Sharing Economy

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Guy Bentley Research Associate, Reason Foundation
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A District Judge in San Francisco has ruled that a lawsuit against Uber filed by three of its drivers demanding they be reclassified as employees instead of independent contractors has class action status.

The lawsuit will now cover up to 160,000 Uber drivers in California. The drivers claim they are entitled to expenses and the full amount of tips received on the job. In an effort to sway the judge, Uber produced testimony from 400 drivers who preferred to remain as independent contractors.

However, Judge Edward Chen threw out the argument Uber put forward that the three plaintiffs could represent the interests of all Uber drivers in the state. While Chen sided with the drivers on the issue of their employment status and complaints about tips he was more skeptical about the expense reimbursement.

The plaintiffs argued that the $50-billion company’s ability to fire drivers with relative ease proves Uber’s status as an employer.

If Uber drivers are found to be full-time employees and the company is forced to replace its current business model in California there could be major costs for the ridesharing firm. Uber could soon find itself hit with costs like Social Security and unemployment insurance.

Uber and its peers in the sharing economy such as Lyft have argued their flexible relationship with drivers enables them keep prices low and expand rapidly. Furthermore, Uber has argued its model benefits drivers who can be their own boss rather than be tied down to a fixed set of hours and shifts.

Currently, Uber focuses on providing and developing its app and drivers who use it to pay a percentage of their fare to the company. This arrangement allows Uber to keep costs down and cheaper services are then provided to customers.

If the legal battle over Uber’s contract model is won by the plaintiffs it could serve as a model of action for those who want to limit or radically change the way the company does business and could be applied to a host of other sharing economy firms.

In London, the GMB Union, a long-time opponent of Uber, is filing a similar case to those seen in California. (RELATED: The California Playbook For Fighting Uber Goes International)

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