YANI CRESPO–Over the past few years, the idea of sharing and utilizing empty space in vehicles for profit—commonly referred to as “ride-sharing”—has rapidly taken hold in many major American cities. Ride-sharing companies, such as Uber and Lyft, promote their services as a way to better utilize the empty seats in most cars by “sharing” them with users requesting a ride, which arguably serves to lower fuel usage and transportation costs. Ride-sharing companies do not own vehicles. Rather, they claim to function as technology platforms that connect riders with drivers through the use of a smartphone app, which simultaneously links users through the phone’s G.P.S. The drivers may be individuals, part-time taxi drivers, or existing car service companies.
Uber, a transportation technology company founded in 2009 by Travis Kalanick, is at the forefront of the ride-sharing movement. Launched in 2010 in San Francisco, Uber currently provides city residents in over 260 cities with a convenient and effective way to move from place to place. By the end of 2014, Uber was valued at over $40 billion, making it more valuable more quickly (in just a six year period) than other fellow startups—e.g., Facebook, Google, and Amazon—analyzed in the same time period.
However, Uber’s success has not gone unchallenged. The company faces significant pushback and resistance from heavily regulated taxi industries, state and federal regulators, and some government officials. In many major cities throughout the U.S., taxis and for-hire vehicles are subject to strict licensing requirements and antiquated regulations. Under Miami-Dade County’s laws regulating taxis and for-hire vehicles, ride-sharing services like Uber are effectively banned because the stringent requirements would make the company’s service illegible. For example, drivers operating vehicles-for-hire in Miami-Dade are required to wait an hour before picking up passengers for rides that must be a minimum of two hours, costing passengers at least $70 per ride. Miami is just one of many major cities similarly treating ride-sharing companies as “unlicensed taxi services.” Uber’s opponents believe that Uber unfairly circumvents insurance and safety regulations by “acting as a taxi company in disguise.” However, Uber vehemently disagrees with any comparison of its company with that of a taxi service.
According to Uber, its drivers are independent contractors, not employees. Regarding this issue, Uber spokesman Taylor Bennett has stated: “They’re independent contractors. We don’t hire drivers. We’re a technology company. We provide the app that they use, that connects passengers with drivers. They have the flexibility of being their own boss.” However, many people disagree with Uber’s view of its drivers.
In 2013, former Uber and Lyft drivers filed separate lawsuits against the two companies in the Northern District of California. Both lawsuits claim that the companies have misclassified drivers as independent contractors. In addition to seeking full employee status and a minimum wage for drivers, the plaintiffs are seeking reimbursement for expenses including gasoline and car maintenance costs. At the crux of both lawsuits is whether Uber and Lyft drivers should be classified as employees or independent contractors. Under current labor regulations, “employees are generally covered by protections such as minimum wage and antidiscrimination statutes, workers’ compensation, and union-organizing rights, while the latter [independent contractors] have no such protections.” Generally, most firms prefer hiring independent contractors “because they are not subject to certain tax and legal liabilities and can cost firms less in pay and benefits.”
In January 2015, hearings were held for both cases. Although the courts have not released formal opinions regarding the proper classification of the drivers, the district judges indicated skepticism, in dicta, about the car services’ current classification of their drivers as independent contractors.
In one of the two January hearings—the Uber lawsuit—Judge Edward Chen questioned why Uber set fares, screened, and even fired drivers if it did not consider itself an employer. In the hearing transcript, Judge Chen states that he was not persuaded by “the idea that Uber is simply a software platform service provider and nothing else.” Robert Hendricks, an attorney for Uber, claimed that as an intellectual property company, Uber’s drivers do not serve the company because Uber assumes no obligation to provide rides requested through the app. Rather, Mr. Hendricks argued that because Uber benefits from drivers making transactions on the app, that fact “makes them a customer.” Although it is likely that the case will proceed, Judge Chen ended the hearing without issuing a ruling. Similarly, in the Lyft lawsuit, Judge Vince Chhabria stated that current employment categories are “woefully outdated” when applied to app-enabled firms such as Lyft. In addition, Judge Chhabria indicated that rulings from earlier California cases lead him to conclude that Lyft drivers must be classified as employees, not independent contractors; however, he also did not issue a formal decision.
Although any future rulings in these cases would apply only to Uber and Lyft drivers in California, the financial implications for both companies could be substantial. According to Samuel Estreicher, professor of employment law at New York University School of Law, most employment suits like these settle. However, Mr. Estreicher doubts these particular cases will settle quickly because of the financial implications involved and the likelihood that both companies will have to change their business models. Nevertheless, the outcomes of the lawsuits in California may potentially pave the way for similar lawsuits in other cities throughout the U.S.
