Uber and Lyft Ride-Hailing Companies Challenged

Overview: The popular ride-hailing companies Uber and Lyft have been sued in two separate cases by drivers and former drivers claiming they are true employees, not independent contractors, thus entitled to overtime, withholding, reimbursement for costs and worker’s comp.  Two separate federal judges ruled there was enough ambiguity that the question should be presented to two juries.  A final decision that Uber and Lyft drivers are employees, which does not seem right,  could be fatal to the companies, at least as we know them now.

Two separate federal lawsuits were filed in California against Lyft and Uber, the successful ride-hailing companies doing business in major cities in California and other states. If the plaintiffs, former and current drivers, are successful, it may be the end of Uber and Lyft as we know them.

Smart Phone App

Lyft and Uber operate off a smart phone application where passengers are matched with nearby drivers who are available to transport people in their personal automobile. Lyft gives each driver a “Carstache,” a big fuzzy pink mustache to attach to the front of the car when using it to give “lifts.”

Lyft and Uber are very popular in San Francisco. I know because when I recently attempted to hail a cab with my nephews and nieces, they laughed at me for being so out dated — and old — and uncool.

Lyft and Uber have had legal battles entering the market in Europe, coming up against taxi businesses.

Employees or Independent Contractors

As each of these cases makes clear, the legal question is whether Lyft and Uber drivers are “employees” or “independent contractors” under California law. Employees are entitled to protections and benefits like withholding, reimbursement of expenses, overtime pay and worker’s comp. Independent contractors receive no such benefits.

Both the Uber and Lyft business models treat drivers as independent contractors, and their contracts with drivers so reflect.

Drivers Are Independent Contractors

A solid case can be made that Uber and Lyft drivers do not seem like employees. They have no supervisor, they have no regular hours, the drivers can work as little or as much as they want and they can schedule their driving around their other activities. They control where they drive. They can show up for “work” or not. How could such a person be an employee like us nine to fivers earning a lousy paycheck?

Drivers Are Employees

But Uber and Lyft drivers don’t seem much like independent contractors either. They have no special skills other than driving a car. Drivers have no business per se. Uber and Lyft have a great deal of power over how drivers actually do their work including the power to fire them if they don’t meet detailed written specifications.

We Want Our Tips

The two Uber driver plaintiffs also sued for tips they claim are collected but never paid by Uber. These drivers want Uber to reimburse them for the tips collected by Uber which are advertised as part of the set fee “tip included” for using Uber. Real tips are seldom paid. In fact, nothing is paid to the driver by passengers. Bizarre for a rookie user like me.

Class Action

The Uber and Lyft plaintiffs sued to establish a class of Uber and Lyft drivers nationwide — bringing them under California law. California law favors employees. Surprise, surprise. The two federal cases seem to reach different conclusions about whether California’s wage and hour laws will apply to drivers in other states.

Setback for Uber and Lyft

Two different federal judges looked at the facts — suggesting drivers may be employees and not independent contractors, even though in this writer’s opinion, they are more likely independent contractors.

Both judges came down with the same conclusion: While it is not clear that Uber and Lyft drivers are indeed employees, a jury given all the facts, could make such a determination, so these cases should be allowed to proceed forward to a jury trial.

As the judge in the Lyft case concluded, “As should now be clear, the jury in this case will be handed a square peg and asked to choose between two round holes. The test the California courts have developed over the 20th Century for classifying workers isn’t very helpful in addressing this 21st Century problem. Some factors point in one direction, some point in the other, and some are ambiguous…Or perhaps [Lyft] drivers should be considered a new category of worker altogether.”

JP’s Thoughts

I anticipated taxi cab companies would fight Uber and Lyft, forcing drivers to have insurance, obtain permits, pass a driving test and meet regulations imposed on cab drivers. I never envisioned Uber and Lyft would be challenged by their drivers claiming they are true employees. They don’t feel like employees to me, but a couple of juries will soon decide, thus determining the fate of Uber and Lyft.

Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. Jim’s practice areas include: real estate, development, construction, business, HOA’s, contracts, personal injury, mediation and other transactional matters. He may be reached at porter@portersimon.com or www.portersimon.com.  

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