(Bloomberg) — Uber Technologies Inc. will have to defend a group lawsuit brought by drivers seeking the pay and benefits of employees.
The judge’s ruling may slow the company’s growth and cut into its $50 billion valuation. It could affect the company’s drivers around the country, even though the San Francisco case is limited to some of the 160,000 in California.
Tuesday’s ruling by U.S. District Judge Edward Chen means Uber’s California drivers can press as a group for reimbursement for tips. Changing drivers’ status from contractors would entitle them to unemployment and workers’ compensation as well as the right to unionize.
Besides crimping Uber’s “drive whenever you have time” motto, a jury verdict concluding many of its drivers are employees, if upheld on appeal, would damp profits. Other U.S. courts may follow Chen’s lead as they grapple with similar lawsuits against companies operating in the sharing, “gig” or “on-demand” economy that pair customers with products through apps and typically avoid the costs of traditional employment.
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The ruling is “a very big deal,” said Beth A. Ross, an employment lawyer who won a similar case against FedEx Corp. “The question in this case is whether Uber’s business model is lawful or unlawful. If that question gets to be decided on a class-wide basis, that’s the whole ball game,” Ross said.
Just how many drivers will end up being represented in the lawsuit is disputed by the two sides, and will be clarified by Chen over the next two months.
Uber’s lawyer, Ted Boutrous, said in an e-mailed statement that the company was pleased Chen rejected the “mega-class” plaintiffs sought. In a separate statement, Uber said Chen allowed only a “tiny fraction” of the 160,000-member class to go forward. Uber will probably appeal the ruling because it is based on “several key legal errors,” according to Boutrous.
The two lead plaintiffs in the case “cannot represent the interests of the thousands of other drivers who value the complete flexibility and autonomy they enjoy as independent contractors,” Boutrous said.
Shannon Liss-Riordan, a lawyer representing the drivers, said that tens of thousands of drivers are likely included in Chen’s ruling. She said more will join as the full scope of Chen’s ruling is sorted out in litigation.
‘Worth a fortune’
Uber’s financial exposure as a result of Chen’s ruling is significant because the claims “are worth a fortune,” Ross said. “The dollars add up really, really fast,” she said, saying the 2,000 drivers in her FedEx case pale in comparison to the potential 160,000 in Uber’s. In the FedEx case, also a class action, the company agreed to a $228 million settlement that is being considered by Chen.
An important factor in determining whether the Uber case could proceed was a determination that Uber exercises control over its drivers.