Judge Faults Uber for Confusing Drivers With New Contract

Harry here.  Just when the buzz was starting to die down over last week’s driver-partner agreement debacle, the judge in the employee misclassification case came down hard on Uber.  As someone whose main source of legal knowledge is a show called Law & Order, Uber’s attorneys seem pretty bad.  Did they really think it was a good idea to send out a brand new partner agreement with the exact same arbitration opt-out wording that the judge literally just ruled against?  I guess so…

Their history isn’t that great either.  During my interview with SLR, she pointed out that Uber’s California choice of law provision allowed her to go after Uber in California, and CA has some of the most lenient classifications of reimbursable expenses so potential damages are much higher because of this provision.  Oops?

But today, RSG contributor John Ince takes a look at that situation and more.  There were also some newsworthy stories around unionization in Seattle, layoffs at Uber, a cool Lyft program for the holidays and farting.  Yes, farting in the back of an Uber and you’ll never guess which Bay Area star is the silent but deadly type.

confused uber driver on the road
Judge Faults Uber for Confusing Drivers With New Contract

Judge Faults Uber for Confusing Drivers With New Contract

Sum and Substance: Uber Technologies Inc. was barred from imposing a new contract on drivers who are suing the company to be treated like employees after a federal judge said the reworded agreement is confusing. 

U.S. District Judge Edward Chen in San Francisco on Thursday also ordered Uber to stop communicating with drivers covered by the class-action lawsuit without consulting a lawyer for the drivers or getting the court’s consent. The rebuke to the world’s most valuable startup came after a lawyer for the drivers accused Uber of going behind her back to circulate a reworded work agreement Dec. 11 that she said was meant to trick her clients into relinquishing their right to join the class action. Chen concluded the new contract is “likely, frankly, to engender confusion.” “I’m very concerned about what has happened,” he told lawyers in court. Uber’s lawyer told the judge the company thought it had his blessing to issue the new agreement.

‘Unlawful, Unconscionable’ “This court had ruled that provisions were unlawful, unconscionable and unenforceable.” Uber issued the new agreement two days after Chen vastly expanded the case, seeking to classify California drivers as employees rather than independent contractors, to include more than 100,000 people. A provision of the new agreement requires drivers to resolve any conflicts with Uber in private arbitration instead of court.

Chen ruled Dec. 9 that drivers in the class action can seek expense reimbursement, including as much as 57 1/2 cents for every mile driven, in addition to their claims for tips that were already part of the case. A trial is scheduled for June. A victory for the drivers threatens to upend the ride share company’s business model and cut into its more than $60 billion valuation.

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

My Take:  This is a strong rebuke to Uber from the judge who essentially controls their fate.  It basically tells Uber to stop messing with California drivers’ legal rights.   The stakes here are huge.  Imagine if 160,000 drivers in California all have to be reimbursed for 57 cents for every mile.  We’re talking about all the miles every driver has driven for Uber since the company’s inception. Do the math … if we assume an average of 10,000 miles per driver, Uber is looking at a potential payout to drivers of close to $1 billion – just in California.  What if other drivers in other states start suing and class action is established there?  Then throw in a few hundred million for the tips that Uber said drivers were getting, but weren’t.  Add it all up and Uber’s got a huge liability that threatens their entire business model.

Now we know why Uber is trying to pull every trick in the book to thwart this lawsuit. Uber will appeal this to the bitter end and spend millions on the ‘best’ lawyers money can buy.  The process will drag on for years and likely end up in some kind of out-of-court settlement.  But it’s safe to say that the plaintiffs have gotten Uber’s attention on this.  There’s an even bigger question hovering over all of it – will investors walk away from future funding rounds because of this?  If so, that would be the greatest risk to Uber because they aren’t making any profit yet.  Uber depends on investor’s capital to survive and without that, they’re toast.  Stay tuned.

Uber may replace its five-star driver rating system with emoji

Sum and Substance: Uber’s five-star rating system for drivers could soon be replaced with something even simpler. The company is currently testing out new ratings systems in a handful of markets that include a choice of “thumbs up/thumbs down,” emoji smiles and other options that give passengers a basic choice of good or bad, Singapore-based Uber spokesperson Karun Arya told Quartz.

This system will initially only affect a handful of users around the world. Arya couldn’t immediately name all the markets involved, or discuss many of the details, but judging from surprised Uber users on Twitter, they include Singapore and Austin, Texas.

Uber’s five-star rating system is a major source of conflict between the company and its drivers. If drivers’ ratings drop below a 4.6, they can be booted off of Uber, a fact that many passengers don’t realize. Consumers who are used to rating restaurants and hotels are likely to think a four-star rating isn’t too bad, not knowing that they could actually be costing their driver his job.

Drivers argue these restrictions show that Uber controls their work environment, and they should therefore be given full benefits as employees, although they are treated as independent contractors. The company faces protests and lawsuits from drivers, most notably a serious class-action lawsuit in California that could upend its business model. Reducing Uber’s rating system to “good/bad” could potentially weaken the argument that Uber is acting as an employer, if it indeed minimizes undue firings.

Research also shows that using a “Pass/fail” grading system in school, as opposed to the US’s “A-F” scale, reduces stress and improves group cohesion. For Uber, making drivers happy right now gets a thumbs up.

My Take:  When I first read this, I had to be sure it wasn’t some kind of a put on.  But it appears that Uber is actually testing this out.  If they were to follow through with this and make this change system wide, it could have a huge impact on driver attitudes.  Spend any time on driver message boards and online forums and you’ll encounter numerous posts from drivers who feel they’ve been unfairly dinged by a passenger who just didn’t understand how important driver rating are.

Before we get carried away here, remember this is just an experiment being tested in various locations. It’s very likely in anticipation of the legal arguments that will be presented next June in San Francisco’s trial that will decide whether drivers are employees or independent contractors. Now if we could just get Uber to do something about the tipping thing.

How Uber cleverly controls its stock so it won’t have to go public anytime soon — unlike Facebook, Twitter, and Google

Sum and Substance: Uber is currently raising more money — up to $2.1 billion — at a valuation of about $62.5 billion. The round will bring the five-year-old company’s total amount raised to just over $12 billion. And as of this moment, the company says it has no plan to go public, despite generating more than $10 billion in gross annual revenue. 

The last time we saw a private company scale to a $60+ billion valuation was Facebook in 2011. In March 2011, 14 months before Facebook went public, it was valued at $65 billion when General Atlantic reportedly bought less than 0.1% of the company. But a year later Facebook was essentially forced to go public.

Basically, Facebook had so many shareholders that, according to SEC guidelines, it would have to start reporting its business metrics as if it were a public company. Facebook priced its IPO at more than $100 billion in 2012, making it the third-most-valued public offering of all time, only trailing Visa and Enzel. Even though Uber is almost the same size and scale as Facebook was back then, it’s in a substantially better situation. The company has been careful to learn from Facebook’s missteps and control who owns its stock so it isn’t forced into an IPO. 

CEO Travis Kalanick hasn’t even sold any of his shares. “It took Facebook a long time to go public, but once they did, Zuck has become a huge proponent — is it misery enjoys company?” Uber CEO Kalanick joked at the WSJD Live conference in October. How is a founder able to raise $12 billion at a $62.5 billion valuation and resist the pressure to go public? Here’s what Kalanick did to get himself and Uber in a cozy position, flush with both cash and control.

My Take:  The basic premise of this article is noteworthy – Uber is staying private as long as it possibly can so they can avoid the glare and scrutiny that comes with being public.   The author gives several anecdotes about investors who have tried to sell their shares of Uber for a profit, but Uber has shut them down.

Basically Uber is pushing the envelope on the private investor gig, just the way they’ve pushed the envelope on the independent contractor gig and a the whole sharing economy gig.   But at the end of the day, a company needs to show a profit for investors to keep buying in, and Uber hasn’t figured out how to do that yet.  Unfortunately that’s the most important thing for investors and it’s anybody’s guess just how patient they will be on this issue.   One thing’s for sure, their burn rate – $470 million losses on revenues of $415 million can’t continue forever.

Seattle Votes to Allow Uber Drivers to Form Unions

Sum and Substance: Uber Technologies Inc. was dealt a setback in Seattle, where the city council voted unanimously to give collective bargaining rights to drivers. The new law allows workers who drive for ride-hailing services, such as those from Uber and Lyft Inc., to form unions and negotiate wages with the companies.

While Seattle Mayor Ed Murray expressed concerns, council members supported the bill. “It was a huge victory for drivers who took a lot of risks; many have been deactivated, lost their jobs,” said Dawn Gearhart, a representative of Seattle Teamsters Local 117, which is working to organize drivers as part of the App-Based Drivers Association. “Drivers have really worked hard to get to this point.” 

While Seattle’s collective-bargaining law is the first of its kind, Uber and Lyft face lawsuits and regulatory battles in cities around the U.S. that threaten to change how it classifies and compensates drivers. Uber’s employment practices have come under scrutiny recently, with drivers in California suing the company to be treated as employees rather than contractors. Last week, Uber asked its U.S. drivers to sign a reworded contract that restricts their right to sue.

My Take:  This is a follow up to last week’s lead story in the Roundup.  It’s a pretty bold step for Seattle.  Uber will likely file legal challenges but, if only for public relations, it’s a big setback to Uber – one of many PR setbacks the company has suffered recently.

No one is telling you the real story behind Uber’s latest layoffs

Sum and Substance: On Friday, the New York Times’ Mike Isaac published a scoop: Uber is laying off around 20 people in its comms and policy department. As Isaac reported, the move follows the recent arrival of Rachel Whetstone as Uber’s head of policy and communications. 

Given the influence wielded by Whetstone (see Pando passim) and the importance of strategy and comms to Uber’s long term success, this should be a big story. It is a big story. And yet. According to Google News, a grand total of one publication – Business Insider – followed up Isaac’s story. One. And that follow-up amounted to little more than a re-write of Isaac’s tweet about the story.

The major tech blogs completely ignored it. The real story is that Rachel Whetstone is cleaning house; getting rid of David Plouffe’s people in order to remake the company’s comms and policy team in her own image. If you were worried about Uber’s power under Plouffe, you should be shitting yourself at what they’ll be capable of under Whetstone.

My Take:  Pando is perhaps the most aggressive media outlet covering Uber and this story is definitely written with an edge.  So what is the real story behind the layoffs?  Pando’s Paul Carr is suggesting that the move signals a much more aggressive approach for Uber in dealing with political and PR threats.  But how much more aggressive can Uber get than they are now?   Perhaps we’ll find out.

Andre Iguodala admits using farts to get revenge on bad Uber driver

Sum and Substance: Early Tuesday morning, Andre Iguodala tweeted that his Uber driver was so bad that the NBA Finals MVP felt no remorse farting in his car. Uber Support wants to know all about that fart. Imagine the fart details going down in these DMs. QUESTION: Does farting break the social contract between the Uber driver and drivee? When, if ever, is this behavior OK? You gotta hear both sides:

My Take:   As a Golden State Warrior fan, I’m personally conflicted over this  breaking story :).  On the one hand, I greatly admire Andre Iguodala for his basketball skills, his understanding of the game and his appreciation of team chemistry.  But as an Uber driver I’m adamantly opposed to farting as a retaliation device.  We need to get to the bottom of this issue – our fate as drivers is riding on the eventual outcome of the investigation.

This holiday season, we’re giving gifts and giving back.

Sum and Substance: UNWRAP SOMETHING AWESOME WITH GIFT ROULETTE – Pick a gift, any gift: This Wednesday and Thursday, we’re filling Lyft cars in Austin, Boston, Chicago, Los Angeles, New York, Seattle, San Francisco, and Washington, D.C., to the brim with presents for lucky passengers.

If you get matched with a Gift Roulette car when you request a ride, you’ll have your pick from hundreds of awesome presents. Choose wisely. No do-overs allowed!

LYFT GIVING – We’ve teamed up with PayPal to make it easy for Lyft users across the country to give back — up to $100,000! Starting Wednesday, tip your driver $5 or more between 7 a.m.- 7 p.m. and PayPal will donate $5 to Meals on Wheels America and its local members until we hit $100,000. Plus, if you pay with PayPal, they’ll double it, and donate $10.

No purchase necessary to enter or win. Gift Roulette cars will be dispatched at random 12/16-12/17 and are not guaranteed. Max one winner per ride. See full terms and conditions here. PayPal will donate $5 or $10 until $100,000 has been donated. Valid nationwide.

My Take:  Just one more example of how Lyft distinguishes itself from Uber in a positive way.  It’s amazing how far a little act of generosity will go.  I went to Lucky supermarket and invested $5 in candy canes and hung them conspicuously over the pockets on the back seats.  Passengers love them. I’ve gotten positive vibes from that small gesture that far outweigh what I invested. Tis the season for sharing and we’re all in the business of sharing, for worse or for better.  The choice is ours how we fit into this new world.

Drivers, what did you think about the week’s top stories?

-John @ RSG