Despite both political and legal challenges, Uber is expected to continue providing its popular ride service.
Not likely. History, economics and consumer demand all show that Uber and other companies are likely to continue to flourish even if the legal battles force them to shift parts of their business model, numerous observers say.
“We’re keeping the doors open, and the show will go on,” said Nanci Clarence, an attorney for the Mitchell Brothers O’Farrell Theatre, after it settled a groundbreaking case from exotic dancers seeking employment status in 1998.
The dancers’ case, resolved after years of haggling, set the stage for today’s lawsuits against Uber, Lyft, Postmates, Try Caviar, Handy and other on-demand companies, said Beth A. Ross, the Oakland lawyer who represented the dancers.
Even while granting class-action status to California drivers suing Uber, U.S. District Judge Edwin Chen on Tuesday emphasized that the ride service will do just fine no matter the outcome.
“Even if Uber loses this case, it will be free to restructure its relationship with its drivers in such a way that the drivers would actually be bona fide independent contractors,” Chen wrote.
That restructuring could involve looser controls — the key issue in determining employment.
“The curated model approach that so many companies followed due to Uber's success will now come under question,” said Jeff Tennery, CEO and co-founder of on-demand hiring platform Moonlighting, referring to the way companies tell workers how to interact with customers, for instance. That “curation” opens them up to lawsuits over employment.
Tennery said an Uber loss could spur startups to create open labor marketplaces modeled after eBay, where two parties can connect directly with fewer rules about their interactions, “as well as offering workers more freedom and choice to generate new income.”
If Uber loses, it would have to do business differently, which would cut into its eventual profitability, Ross said. “It has a $50 billion valuation because it’s running a transportation company with practically no overhead. If it had to pay its fair share (of worker expenses and benefits), it could still operate its business; it just would make less money.”
Ross championed FedEx Ground drivers who won employment status and a $228 million settlement in a case cited as a recent precedent. FedEx reacted by substantially changing its business model, Ross said. It no longer engages “a guy with a truck” for deliveries. Instead, it sticks to incorporated entities that operate at least five routes with at least five trucks. “It’s gone to a super-contractor model,” she said.
The most significant precedent-setting case is S.F. Borello & Sons vs. Dept. of Industrial Relations, decided by the California Supreme Court in 1989. It involved migrant farmworkers who harvested cucumbers destined to be Vlasic pickles. The workers managed their own time and that of their families, provided their own tools and received a share of each crop as compensation. But the court said they still were employees because the grower controlled the economics of the relationship.
That point holds true for Uber as well, Ross said. “The drivers have no ability to negotiate their compensation — none,” she said.
Phillip Maltin, an employment lawyer in Los Angeles, represented a prominent employer in a case with some similarities to the Uber lawsuit.
“The business said privately that if its workforce were reclassified from independent contractors to employees, that it would close its doors,” he said.
But when a court granted the case class-action status, the company decided not to take its chances in court. “The business settled the lawsuit, reconfigured its business model and survived,” he said. The workers ended up making less money, but received benefits as well as the right to organize.
Uber now says the potential class in O’Connor vs. Uber Technologies might be 15,000 drivers, less than 10 percent of all those who have driven in California — although that’s a point the other side disagrees with. Since June 2014, most Uber drivers have agreed to individual arbitration for disputes. Others drive through third-party companies. Chen said these drivers would be excluded for now from the class, but left open a door for arguments otherwise. And even drivers excluded from the class can join in the lawsuit by contacting plaintiff attorney Shannon Liss-Riordan.
But the smaller class could still open up a Pandora’s box for Uber. Each excluded driver can file an arbitration claim — something Liss-Riordan said she is eager to help with.
“Could you imagine the business hell Uber would be operating in if its drivers were to individually demand arbitration on the issue of whether they are employees?” Maltin said. “It would have to defend swarms of demands.” Such cases are simple for plaintiffs to file and require the corporation to pay the arbitrator’s fees.
Even if the case ends up being 15,000 workers, “that’s still a lot of people and this is a very significant case,” Ross said. “It will shine a light on the direction the courts are likely to go in future cases, so it has broad implications.”
As with Uber, and copycat cases springing up against other on-demand companies, the exotic dancer case two decades ago spread throughout the state, with about 20 class-action suits filed on behalf of thousands of dancers. The dancers ending up becoming employees, with rights such as minimum wage, overtime and workers’ compensation coverage — something many needed after years of dancing on concrete floors in stiletto heels.
And yet, adult clubs in California seem to be coping just fine.
“They’re still making money hand over fist,” Ross said.
©2015 the San Francisco Chronicle. Distributed by Tribune Content Agency, LLC.