Uber Lawsuit May Signal Big Changes in the 'Gig Economy'

As Uber faces the prospect of a class-action lawsuit that could force the company to classify its drivers as full-time employees instead of independent contractors, the growing "gig economy" — in which people work for themselves and take individual gigs rather than going to work for one company full-time — may also feel the effects.

On Tuesday, a federal judge in California granted class action status to Uber drivers, opening the door for thousands in the state to proceed with a suit arguing that they should be classified as full-time employees instead of independent contractors. Lawyers representing three Uber drivers who brought the case argued that drivers are entitled to tips and expenses such as toll fare.

Shannon Liss-Riordan, one of the attorneys for the drivers, praised the ruling as "thoughtful and comprehensive" in a statement emailed to VICE News.

There are 160,000 people who have driven for Uber in California since 2009, but only a portion of them are entitled to take part in the lawsuit, according to this week's ruling. The judge excluded any drivers who worked through third-party transportation companies, as well as those who started driving after June 2014, when Uber inserted an arbitration clause into drivers' contracts. Uber estimates that fewer than 15,000 drivers are eligible.

Liss-Riordan said that she plans on appealing the ruling that limits the lawsuit to California drivers in an effort to expand the judgment to drivers around the country. The case is expected to go to trial sometime next year.

"Approximately 2,000 drivers from around the country (about half from California) have already contacted our firm about the case," said Liss-Riordan, who has also brought suits against gig-economy companies like Lyft and Postmate because they classify their workers as contractors.

Tuesday's lawsuit argued that Uber is misclassifying its drivers as contractors because they have all the same functions and responsibilities as full-time employees entitled to employee benefits; contract workers do not qualify for health insurance, workers' compensation, or paid leave. Uber argues that it is a ride-sharing app that connects people with drivers, and is not those drivers' formal employer. (The company refers to workers as "driver-partners.") Classifying them as contractors, Uber says, gives their drivers unique flexibility and control over when and how they work.

Uber said it is planning to appeal the ruling, arguing in a statement on its website that there is no typical Uber driver who can represent all workers.

If Uber is forced to hire drivers as full-time employees rather than independent contractors, "all of the things like scheduling and the HR headaches that they've been able to avoid so far will come to the fore," Roberto Cruz, a lawyer who deals with employment compliance issues, told VICE News. "Uber will start to look like any other transportation company."

As the gig economy grows, the line between whether a worker is considered an employee or a freelancer has blurred. Many new startups rely on a workforce of part-time or occasional workers. But for many members of that workforce, the so-called gig is their only source of income and they fulfill many of the same job functions as a full-time employee. The rise of companies employing their workers as contractors rather than staff has led to several employee misclassification cases, which in turn has triggered more lawsuits.

"These cases of Uber and Lyft are so high-profile now, so you have workers themselves paying attention to them and seeing themselves in these lawsuits," Cruz says.

It's estimated it would cost Uber at least $200 million in California alone to convert all its drivers to full-time employee status, Cruz said.

Tuesday's ruling is not the first time Uber has been the subject of an employee misclassification lawsuit, but the decision to grant drivers class action status could signal an overall shift for other smaller companies. Several Silicon Valley companies voluntarily moved to convert their contractors to employees in the past several months. In July, a startup company that provides valet service to city drivers, Luxe Valet, converted hundreds of its parking attendants from contractors to employees. Instacart, meanwhile, made some of their in-store shoppers employees in June in an effort, the company's CEO said, to provide a more consistent service to customers.

The government has seemingly taken notice of the spate of employee misclassification lawsuits. The US Department of Labor has been running an initiative attempting to clarify the difference between freelancer and employee and go after companies that misclassify their workers.

Senator Mark Warner has become the first lawmaker to specifically address the challenges the gig economy poses to both workers and the US economy in general. In a June op-ed in the Washington Post, Warner wrote, "These workers, even if they are doing very well, exist on a high wire, with no safety net beneath them. That may work for many of them — until the day that it doesn't."

Warner argues that the government should streamline the various federal programs aimed at helping entrepreneurs and redefine what employment looks like in the 21st century so that taxpayers are not left responsible for the social services for which companies like Uber have avoided paying.

But if companies end up being forced to shift their business model from freelance to employees as a result of these type of lawsuits, Cruz points out, it will likely be the consumer paying for the increased cost in the short term.

"It's hard to think that if [Uber] has to convert their employees," Cruz says, "that it won't trickle down to the person who opens up the app and hails a car."

Photo viaFlickr

Follow Olivia Becker on Twitter: @obecker928