Why Class Action Certification For Uber Drivers Is Huge - and Not Just for Uber

It is tough to get a federal class action certified these days. The current US Supreme Court has made clear its preference for the interests of business over those of consumers or the workforce. So a federal judge approving the drivers' lawsuit status is a serious threat to Uber's business model, to every other 'on demand,' sharing economy hustle - and to the investors who've driven Uber's valuation up to nosebleed levels.

The fact that so many other companies are scrambling to reclassify contractors as employees is a signal that their legal counsel are advising them to do so because the 'non-employee' gambit is probably unsustainable. Meanwhile, local competition in China, where the government is not as easily rolled (duh!) as it has been in the US and Europe suggests that Uber's growth trajectory may flatten. JL

David Dayen reports in Naked Capitalism:

Class action lawsuits have become VERY difficult to certify at the federal level. So if a federal judge is certifying the Uber class, they’ve cleared the biggest hurdle. Uber has already lost at the California Labor Commission. If Uber ultimately loses this fight, forcing them to classify their drivers as employees, they become just another car service. Anyone can build an app to hail and pay for a ride
The best thing I’ve seen about Uber recently comes from about a month ago. The Wall Street Journal wrote up a perfunctory story about the company’s $50 billion valuation, and it included a very truthful passage. So truthful, in fact, that presumably some PR flak got on the horn and made them change it for the online edition. @NeilAnAlien captured it on Twitter.
Online edition: “The company hopes to attract enough drivers and passengers that its business model becomes profitable.”
Print: “The company hopes to build enough loyalty that it can charge customers more and pay drivers less.”
At this point I should mention that attempted monopolization is a criminal action under the Sherman Antitrust Act.
But Uber has far bigger problems than that. A California judge is threatening their fiendish “Let’s arbitrage state and federal law and replace a monopoly with a different monopoly” plan:

Northern District Court Judge Edward Chen determined that 160,000 current and former Uber drivers in the state could be treated as a class, which will allow a lawsuit against the company to go forward. At stake are questions about the future of jobs in America and potentially billions of dollars for one of the world’s fastest-growing companies.
The lawsuit alleges that those drivers were misclassified as independent contractors rather than employees, and that Uber has thus cheated them out of things that employees get under California law, like reimbursements for gas, worker’s compensation and other benefits. The lawsuit also claims that the company failed to pass on tips to the workers.

Whether they’ll get gas reimbursed is up in the air, it’ll get decided later.
Class action lawsuits have become VERY difficult to certify at the federal level. I wrote about this a couple years ago in conjunction with the Bank of America HAMP modification case, where employees for their servicing arm charged in testimony that they were told to lie and given bonuses for putting people into foreclosure. That was tossed, because of minor differences in the individual homeowner cases. The Supreme Court set the precedent for this in Walmart v. Dukes, creating a more stringent class certification test, forcing the complainants to prove up-front whether the commonality of their claims was the most important factor in the case. Indeed this is what Uber’s lawyers argued – that Uber drivers are so diverse in their dealings with the company that they can’t possibly make up a single class. The goal is to divide and conquer, to force individuals to pursue litigation alone (and be outgunned by Uber’s legal team).
So if a federal judge is certifying the Uber class, in many ways they’ve cleared the biggest hurdle. Uber has already lost a misclassification case like this at the California Labor Commission, but because it was an individual driver suing and not a class, they only had to pay $4,000. But Judge Chen saw right through Uber’s gambit, writing: “Uber argues that individual issues with respect to each driver’s ‘unique’ relationship with Uber so predominate that this Court (unlike, apparently, Uber itself) cannot make a class wide determination.” In other words, Uber insists that all their drivers are independent contractors, but when challenged on it, claim they’re all little snowflakes, no two alike.
Judge Chen did exclude drivers from the class who didn’t opt out of a forced arbitration clause in their driver contracts starting in May 2014. That’s also fallout from a 2011 Supreme Court ruling, AT&T Mobility v. Concepcion, which effectively legalized putting mandatory arbitration in the fine print. Still, since Uber was late to that scheme, the class could be substantial – Uber says 15,000 but they’re almost certainly lowballing.
That’s why you can expect Uber to appeal, and the same Supreme Court that backed up big business and closed the courthouse door to workers in the Walmart case might get a shot to do that for Uber. However, the rank stupidity of their argument – that everyone’s a contractor but nobody’s the same – might be too much even for the Roberts Court.
If Uber ultimately loses this fight, forcing them to classify their drivers as employees, they become just another car service. Anyone can build an app to hail and pay for a ride – the New York City taxi system just unveiled one this week, and e-hailing apps do very well globally. Uber’s “disruption” derives mostly from skirting around labor laws and getting a lot of VC money amid promises to gouge their workers and customers once they put the taxi industry out of business. So having to pay back wages and payroll taxes and reimbursements would kind of blow up the whole thing.
Citing Matt Stoller on Uber from last year:

Uber is quietly gaining enormous power, almost feudal power, over its drivers. Remember, Uber wanted to ‘reward’ drivers with a great paycheck. This works both ways. Are you an Uber driver who is complaining too much about Uber stealing your tips? Well, gosh, it seems like the magic algorithm keeps giving you bad customers. Or no customers. Or think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers, who may have other options and can squeal. But it can also lower prices paid to drivers, and these drivers are dependent on Uber for their livelihood. In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars.
Remember, the customer doesn’t even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to ‘reward’ them. And let’s be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits.

These are just the troubles Uber is having locally. In Mumbai the still-robust taxi union has been on strike for two days, protesting Uber’s expansion after getting a ban overturned in June. In China there’s a local rival that has 80 percent of the car-hailing market and has been buying up competitors. Korea’s version, Kakao Taxi, is emerging as a strong competitor as well.
There’s no special sauce to what Uber does. And if they are prevented from breaking the law in the U.S., they’ll just be another face among many, struggling for profitability.