Uber is Facing Another Nationwide Class-Action Lawsuit

Harry here.  It wasn’t long before lawyers hit Uber with another class action lawsuit over the employee/1099 issue.  Looks like this won’t be going away anytime soon.  You can read our wrap-up of the CA/MA settlement here.

Lots of interesting stories this week and today RSG contributor John Ince takes a look at the newest class-action lawsuit being brought against Uber, Uber’s plan to kill not kill surge pricing and more.

 

Today John Ince takes a look at the newest class-action lawsuit being brought against Uber, Uber's plan to kill not kill surge pricing and more.

Uber is Facing a Nationwide Class-Action Lawsuit

Sum and Substance: Less than a month after Uber settled two class-action lawsuits in California and Massachusetts, another one has popped up. This time, the suit pertains to all current and former Uber drivers in the United States, except for those in California and Massachusetts. 

The suit, filed yesterday in the U.S. District Court for the Northern District of Illinois, Chicago division, asks the court to classify Uber divers as employees rather than independent contractors, “recover unpaid overtime wages and compensation,” reimburse expenses, and pay the tips that “were earned but stolen by Uber or were lost” due to Uber’s communications and policies. 

This nationwide case is very similar in nature to the two Uber recently settled in California and Massachusetts. In those two cases, the settlements determined that Uber drivers in those states will remain independent contractors. As TechCrunch previously noted, Uber had to offer several concessions, with the biggest being $100 million in payments to the 385,000 drivers represented across both cases.

My Take: At last count Uber is facing over 40 lawsuits. Like cockroaches you try to squash, they settle a few lawsuits and others pop up.  This independent contractor / employee issue is not going away any time soon.

Yes, Uber can get it out of the news by settling one case, but the law remains “unsettled.” Sooner or later a jury and judge are going to have to weigh in … at that point things will get really serious for all parties involved.  The next article gives a sense of just how large the stakes are in these legal battles. They may, in fact, be existential issues for Uber and Lyft.

How are Über Drivers Like the Silk Road: Federal Judge to Rule Whether Über Drivers Fix Prices for Über Riders

Sum and Substance: Veteran legal reporter Alison Frankel tells us in Reuters: “the plaintiffs have been shrewd about this case from the beginning. There are two good reasons why their complaint named Über’s CEO – but not the company itself – as a defendant. The tactic raised doubts about the application of Über’s mandatory arbitration provision, since the user agreement is between the company and its users, not Kalanick and users. (Über has argued that because the allegations all involve Kalanick’s conduct as a company official, the user agreement should apply.)”

But wait, there’s more: Naming the CEO personally also allowed plaintiffs to claim a per se illegal price-fixing conspiracy across the ranks of Über drivers, because Kalanick has personally driven Über customers a few times. Kalanick is the only Über driver identified by name in the complaint. Because Travis Kalanick is just like you guys, see? He’s a driver, too. So now you are tainted with his conspiracy. I’m sure he thought about that every time he had to clean puke out of the back seat. 

A word about Judge Jed Rakoff–he’s the judge who rejected Wall Street settlements with the SEC as going too easy on the Too Big To Fail crowd as reported by The Nation. A frequent opinion writer for the New York Review of Books, Judge Rakoff’s 2014 piece “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?” may be a little bed side reading for Uber drivers and fans of The Big Short. Judge Rakoff’s ruling on March 31 allows the case to go forward on the antitrust and price fixing claims with a November 1 trial date. Frankel got a quote from the passenger’s counsel:

“In creating Über, Kalanick organized price fixing among independent drivers who should be competing with one another on price,” Meyer’s lawyer Andrew Schmidt said. “Today’s decision confirms that apps are not exempt from the antitrust laws.“ Remember how Über treats its drivers as independent contractors so they don’t have to pay benefits like everyone else?

My Take:  This is a somewhat scattered article lumping together several lawsuits against Uber, but near the middle of the article there’s a visual that should scare any investor, driver or employee of Uber.

To sum it up: Uber is facing a $4.1 billion dollar liability over the employee / independent contractor dispute, which is now being litigated again (see above).  If Uber loses, they’re responsible for health insurance ($112 million), unemployment ($80.9 million), workers comp ($512 million), vacation and sick pay ($110 million), 401K plan ($72 million), payroll taxes ($612 million) and reimbursement for miles, gas and tolls. ($2.6 billion).  After you read this, you understand why Uber is so willing to settle the San Francisco case, for the relatively low potential payout of $100 million.

Arianna Huffington is an Uber board member: Huh?

Sum and Substance: Editors-in-chief of news organizations are well advised to steer clear of corporate entanglements. They generally avoid doing paid speeches for special interests, stay off of the boards and councils of companies and groups that their reporters cover. The goal is to lead coverage of all newsmakers without fear of polluting the product. 

Today Uber announced that Huffington Post editor in chief Arianna Huffington was joining the company’s board of directors. The announcement came in a first-person letter from Uber chief executive Travis Kalanick, which reads in part: from the start of our friendship it was obvious that she believes deeply in our mission: transportation as reliable as running water, everywhere for everyone. At a staff event last fall, Arianna told the crowd how she once used Uber to conjure a little magic of her own….

My Take:  Yes, this is a head scratcher until you consider the context. In many ways, Uber is in a PR war and bringing Arianna on board gives Uber a leg up in the media world, and some counsel on how to leverage their assets to build the Uber brand. Full disclosure here: I also write for Huffington Post. Like many HP bloggers I’m not paid for my work there. First, Arianna takes advantage of bloggers like us to build the Huffington Post brand. Then she sells her company to AOL getting rich off the labor of those who were doing the heavy lifting for her company. Sound familiar?  Maybe, this isn’t such a perplexing move, after all.

Handcuffed to Uber

Sum and Substance: Plenty of people would give everything to be an early employee at seven-year-old Uber. But Uber employees who’ve been with the ride-share company for at least a few years have discovered a considerable downside to their ride with the transportation juggernaut: they can’t afford to quit.

Startup employees have to exercise their options within 90 days of leaving a company or else lose them and at Uber, that cost is simply too high. A quick scan of LinkedIn for former employees underscores the point. Of Uber’s roughly 6,700 employees, only a tiny fraction have left, and in most cases, those hires weren’t around long enough to be worrying about vested options.

Employees of privately held companies have long wrestled with this issue. With valuations of many privately held tech companies having soared so dramatically in recent years, the amount of capital needed to buy employee options has escalated at an unprecedented pace for employees at a variety of places. Uber appears to be the most extreme example, however. In a completely hypothetical example, let’s say an early, top Uber engineer was given .5 percent of the company.

Now let’s say this person was awarded options in 2011, when Uber raised $11 million in Series A funding at a reported $60 million valuation. His ownership stake at the time would have been $300,000. Yet today, that same stake (undiluted) would now be worth $300 million at Uber’s reported current post-money valuation of $60 billion. That’s a paper gain of $299,700,000. It’s very hard to cry about that, it’s true. But there is bad news: at a 40 percent tax rate for short-term gains, if the engineer opted to leave Uber, he’d confront a tax bill of $119,880,000, not including that earlier $300,000 needed to exercise the options. And leaving Uber would start the clock. He’d have just 90 days to come up with the $300,000, and he’d have to come up with the rest of the money for the much larger tax bill by the next April 15. Maybe Uber will be publicly traded by then. Maybe it won’t.

My Take:  This article lays out a very plausible argument as to why Uber CEO Travis Kalanick seems determined to delay the company’s IPO as long as possible – to retain talent.  To be sure, there are other reasons: few reporting requirements, fewer hassles, less public scrutiny.  Of course, it’s also entirely possible that very few Uber employees are leaving for the simple reason that they’re happy on the job.  One reason employees may be happy on their job is because they’re making amazing amounts of money from their stock appreciation, something drivers can only dream about … dreaming of Juno … where 50% of the founding shares are going to be reserved for drivers …

Uber Drivers Unite in New York

Sum and Substance: Well, that didn’t take long. More than 1,000 Uber drivers are banding together in New York—the birthplace of the organized U.S. labor movement—to create an association that can represent their collective interests to the ride-sharing company’s management. 

The move comes less than two weeks after Uber trumpeted a $100 million proposed settlement with disgruntled contractors in California and Massachusetts who are seeking compensation for certain expenses. Under the agreement, which many describe as a sweetheart deal for the highly valued ride-sharing company, Uber drivers still aren’t considered employees.

However Uber did make a key concession in the proposal: it will allow drivers to create “associations” that can address collective gripes. The New York group is called the Amalgamated Local of Livery Employees in Solidarity (aka Alles). Technically speaking, this is not a union, because the National Labor Relation Board won’t allow that. That means the group won’t officially have any control over fares. The only U.S. city where Uber and Lyft drivers have won that right is in Seattle.

Instead, Alles is making “security and protection” its cause celebre, fighting against issues such as overly long work hours, according to a statement issued by the organizers.

One thing to remember: Uber’s proposed settlement must still be approved by a federal judge in San Francisco. Given how critical many drivers have been over the arrangement, there’s a real chance that the proposal won’t stand. Meanwhile, it’s probably in Uber’s interest to appear as open-minded as possible.

My Take:  Drivers associations could be a big factor in the evolution of the rideshare industry. So far, most organizing efforts have failed to produce results for the simple reason that, well, they weren’t very organized.  But sooner or later some savvy labor leader is going to enlist the support of techies to build out email lists and communication muscle between workers. However, don’t hold your breath until that will happen.  It could be years away.

Uber Plans To Kill Surge Pricing, Though Drivers Say It Makes Job Worth It

Sum and Substance: Sometimes you call an Uber, and what you thought would be an $8 ride is going to be two, three, even four times more — the result of greater demand brought on by a blizzard, or a baseball game. Whatever the reason, surge pricing is not fun. It turns out Uber is working to fix it — or, should we say, end it. The move likely will be great for riders, but not for drivers.

Drivers want surge pricing, though the system for getting it isn’t foolproof. While drivers see surge as a key feature of the job — and Uber advertises it as such to them — inside the company surge pricing is considered a market failure, a problem to be solved Uber hasn’t released an exact timeline for the end of surge, and it’s not clear if the company plans to make an announcement or just phase it out so that riders (myself included) lose the unpleasant 400-percent price increase, without ticking off drivers.

My Take:  Note: Uber has denied any intention or plans to kill surge.  Nevertheless, it’s an intriguing story line coupled with a click bait headline.  Upon first read, I could find very little substance in this article to substantiate the proposition that Uber plans to kill surge pricing if they don’t have to – until a subsequently published Editor’s Note. That note acknowledges challenges to it’s accuracy from other media outlets and Uber.  NPR then counters with a tape and transcript of what appears to be clear substantiation of the story’s main contention: that Uber ultimately plans to kill surge from of an interview with, Jeff Schneider, a leading technologist at the Uber Advanced Technology Center. You can listen to it on NPR’s website or just read this section for the guts of the matter:

Schneider: And so the idea is if you can predict that demand, you get that information out there – and you get that supply there ready for the demand so the surge pricing never even has to happen. And I think that’s one of the really cool things that machine learning’s doing for Uber right now.

Shahani: So just note, Jeff from Uber is saying that machine learning will solve the problem and get rid of surge pricing.

Schneider: There we go!

Shahani: There we go, promise to customers.

Well, what’s the truth here?  Does one engineer’s comments in one interview constitute a company goal to kill their bread and butter.  No, but it could signal longer term intentions.   That would alter the mechanics of their common practice increasing prices even when their prices are dropping.  If you understood what I just said, than you understand a lot more than Uber wants you to understand.  There we go!

This 2 min. Thing Really Backfired for Uber… Next Time Need to Announce It In Silence

Sum and Substance: This is a link to a Jimmy Kimmel video about the reported Uber plan to start charging passengers after 2 minutes. 

My Take:  It’s a funny and balanced video that has elicited a ton of comments on the The Rideshare Guy Facebook page.

Uber Says Tips Are Bad for Black People. But What About Ratings Bias?

Sum and Substance: Uber gave tacit permission to drivers to ask for tips as part of a proposed settlement reached last week to resolve a major class-action lawsuit. Now the company is discouraging riders from feeling obligated to tip—and suggesting that racial minorities get shortchanged in industries that rely on gratuities.

On Thursday, Josh Mohrer, the general manager of Uber’s New York operations, sent an e-mail to customers telling them that tipping is neither expected nor required. He wrote that Uber’s decision to leave tipping out of the app when the service first launched was deliberate, because the company “felt it would be better for riders and drivers to know for sure what they would pay or earn on each trip—without the uncertainty of tipping.” A representative from the company also circulated a 2008 study by researchers at Cornell University and Mississippi College showing that restaurant customers tipped black servers significantly less than they tipped white servers, even when adjusting for how satisfied with the service they were.

My Take:  While racial bias may be real in tipping and in ratings, it seems disingenuous of Uber to offer this up as a reason not to tip at all.  What’s Uber got to lose by making it easier for passengers to tip and build it into the app?  Competitively they would lose nothing vis a vis Lyft who already does it. And they would surely win driver sentiment on this.

Readers, what do you think of today’s round up? Are you disappointed surge (may) be going away?

-John @ RSG