Uber Drivers’ Class Action Raises Worker Classification, Arbitration, Liability Issues

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Fifty seven and a half cents for every mile logged.

That’s the latest demand from Uber Technologies Inc. drivers in California suing to be treated like employees.

Whether the drivers can pursue pay for mileage on their own vehicles going back to 2009 is up for debate at a court hearing set for Tuesday in California, as the dispute over drivers’ status moves toward a trial in June. If drivers who have gotten nothing so far from the company are allowed to seek reimbursement, Uber’s potential exposure would increase sharply, possibly by hundreds of millions of dollars, according to legal experts.

The judge will also consider at Tuesday’s hearing whether to add more drivers to the class-action, which threatens to upend the ride share company’s business model and cut into its $50 billion valuation.

The drivers already have won permission from U.S. District Judge Edward Chen in San Francisco to press as a group for tips they claim they were denied as independent contractors. At the same time, Chen limited the size of the group to what Uber says amounts to less than a 10th of its 160,000 drivers in California. The company, founded six years ago, says most of its drivers joined in the last two years, when the Internal Revenue Service’s mileage reimbursement rate grew from 56 cents to 57 1/2 cents.

‘Ongoing Liability’

Mileage reimbursement would be a tremendous “ongoing liability” for Uber if a jury finds the company has misclassified its drivers as contractors, said Beth A. Ross, an employment lawyer who settled a similar case against FedEx Corp. for $227 million on behalf of about 2,000 drivers.

“It really calls into question the economic feasibility of Uber’s business model,” she said. “Which isn’t to say Uber couldn’t operate the very same service that it provides now, in a lawful manner, by treating these drivers as employees and paying them as employees, and still make money.”

But as a company that bills itself as a technology platform rather than a transportation provider, Uber appears to be resisting an overhaul of its administrative infrastructure to conform with the employee model, she said.

Jessica Santillo, a spokeswoman for Uber, declined to comment before Tuesday’s hearing, saying the company’s position is explained in court filings.

Arbitration Agreements

A lawyer for the drivers is asking Chen to add tens of thousands of drivers hired since 2014 who were excluded because their contracts with Uber required them to resolve disputes through arbitration instead of in court. Shannon Liss-Riordan, the attorney, is basing her request on a September appeals court ruling in an unrelated case she says cast doubt on the legality of the arbitration agreements.

Uber is leaning on a different court ruling from August in the fast-changing area of arbitration law to urge Chen to keep the class capped at fewer than 15,000 drivers. The judge said at a Nov. 4 hearing he’s “taking a second look” at the arbitration clause in Uber’s 2014 contracts with drivers in light of the Aug. 3 decision by the California Supreme Court.

Chen has gone back and forth on the arbitration provision. At first he declared it unfair to the drivers, even after he drafted fixes to try to cure its flaws. Then, saying it was a close call, he excluded drivers operating under the 2014 agreement from the class action.

Ted Boutrous, a lawyer for Uber, exhorted the judge at the hearing three weeks ago not to second-guess his own work that helped make the arbitration agreement bullet-proof.

‘Esteemed’ Judge

“If there’s ever in history” been in arbitration clause that should withstand a challenge, it’s Uber’s, the lawyer argued, praising the intervention of the “highly esteemed” judge.

Even as Chen continues to weigh the issue, the company has asked the U.S. Court of Appeals in San Francisco to bless its arbitration agreements as legal. The court this month declined to review Chen’s Sept. 1 ruling letting the case proceed as a class action.

James Evans, a lawyer who drafts arbitration agreements for companies, said it requires “a very significant logical stretch” for Uber to prevail on the arbitration dispute.

If the drivers win on that point, “then the flood gates bust open and you have a much bigger class,” said Evans, who has reviewed court filings in the case.

He said that while it’s hard to put a figure on Uber’s potential liability, “no one could seriously doubt that it is a lot.”

“Given that Uber is privately held — for now — it is anybody’s guess how much Uber collected from California customers over the past six years, or how many miles Uber drivers have driven for those customers,” he said.

Ross said as trial draws closer, the potential for a large award can drive a settlement. Uber, though, doesn’t appear to be close to considering such an option. Chen asked earlier this month if there was “any reason why you all can’t have a discussion about” settlement talks.

“Your honor, it really goes back to the fact that this is an all-out challenge to the fundamental way the company is operating now,” Boutrous said. The lawyer said that while the company is willing to talk to the other side, he doesn’t see it leading to a resolution. “I just don’t think it makes any sense here.”

The case is O’Connor v. Uber Technologies Inc., 13- cv-03826, U.S. District Court, Northern District of California (San Francisco).