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August 31, 2015

Are Uber and Lyft Drivers Employees or Independent Contractors? The answer could make some plaintiffs’ lawyers rich.

UPDATE (9/2/15): A federal judge has now granted class action status in this case. (Wired)

Uber and Lyft have revolutionized the way people get around, making hailing and paying for a cab as easy as the push of a smart phone app. In the process, they’ve also revolutionized a way that individuals can use their own cars to make money.

But now plaintiffs’ lawyers want the two tech startups to start paying more of the fare. This month, class action lawsuits have been filed against the two mobile transportation companies that claim drivers are employees, not independent contractors.

By hiring drivers as independent contractors, Uber and Lyft are able to offer work flexibility, such as allowing drivers to set their own schedules and work wherever and as often as they like. With this model, more individuals can make working for Uber and Lyft fit their schedules.

Fares stay competitive because drivers use what they already have: their own cars, gas, and insurance. Customers forego the taxi stand in favor of this faster and cheaper ride home.

But the lawsuits claim the drivers were misclassified as independent contractors and should be considered company employees that are owed unpaid wages, reimbursement for expenses, overtime, and other benefits.

If Uber and Lyft had to start covering more costs and treating individuals as company employees, it would dramatically change the way they do business—and how millions of people use these services. It would mean more oversight of hours and schedules for drivers, as each one is now costly to employ. These lawsuits could do away with the current flexible model and eliminate opportunities for Uber and Lyft drivers who can’t conform to a certain schedule or meet minimum hour requirements.

These lawsuits are particularly egregious as they are brought by only a small number of drivers but seek to represent all of the Uber or Lyft drivers in California.

For example, the suit against Uber was filed by only three drivers who are claiming to represent the 160,000 Uber drivers in California. Three individuals cannot possibly represent the interests of all the different drivers, with their varying schedules and locations, who contract for Uber.

It seems that these class action lawsuits might be more about scoring huge settlements than about fairly representing all of the Uber and Lyft drivers. These lawsuits could easily result in verdicts or settlements worth millions, but history tells us the drivers aren’t likely to see much of it.

Plaintiffs’ lawyers will take their cut and the rest will have to be divided between class members. This usually means a big payday for the lawyers and a pittance for the drivers they represent. Worse, if the two firms were forced to make the changes the lawsuits seek, it is likely that a good number of drivers would no longer be able to continue working under the new rules. The economics would change drastically. And of course, that will likely change the economics for the customers too, thus making these services more expensive and perhaps less convenient.

Beyond the fact that California is home to Uber and Lyft, the other reason that these suits are filed there is that plaintiffs’ lawyers like Shannon Liss-Riordan, who is leading the Uber and Lyft suits, can take advantage of the numerous state laws encouraging class actions.

Liss-Riordan is also currently pursuing litigation against other on-demand startups, like food delivery smartphone apps. Class action lawsuits are a huge money-maker in California and plaintiffs’ lawyers are starting to hone in on these new startups.

California’s laws give plaintiffs’ lawyers a path to an easy payday, and also result in important issues like labor policies being decided by trial lawyers in a patchwork quilt manner, instead of by legislators as uniform policy.

For example, a suit brought by one Uber driver declared that individual to be an employee, but the verdict is nonbinding, meaning it only applies to that specific case. On the other hand, six other states already ruled that Uber drivers are independent contractors.

For California, these issues should not be forced through the courts by a non-representative class action suit on which plaintiffs’ lawyers hope to score big at the expense of hundreds of thousands of drivers, and millions of customers.

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