Uber, the popular ride sharing technology platform, is facing lawsuits from drivers who want to be reclassified as employees.

(Updated Oct. 31, 2017)

Uber Technologies Inc. (Uber) has been making waves since its launch in 2011. The San Francisco-based company broke new ground when it offered an app-based taxi service competitor. But Uber has also been criticized for a litany of issues, from hiring unlicensed drivers to price gouging customers to sabotaging rivals. Protests have been held to keep Uber from operating in certain areas and to demand better treatment for drivers.

Uber is the target of class action lawsuits that argue its drivers should be classified as employees, not independent contractors, and entitled to worker benefits.

Most recently, Uber is the target of class action lawsuits that argue its drivers should be classified as employees, not independent contractors, and entitled to worker benefits. If plaintiffs prevail in the lawsuits, it could cause a major shift in Uber’s business model and the business models of similar “on-demand” companies that operate through the internet and rely on contract labor.

A Brief History of Uber

Uber, the most valuable startup in the world (at more than $60 billion), grew out of black-car service UberCab, the brainchild of Garret Camp and Travis Kalanick, a young pair of entrepreneurs who wanted to offer a taxi alternative in San Francisco. Following testing in New York, UberCab launched in San Francisco in June 2010.

The early company functioned in the same way that Uber currently does: ride seekers, using a downloadable app, requested a car at their exact pickup location. Then, a driver from UberCab’s network accepted the request and provided the ride using their own vehicle.

UberCab quickly became a hit and the company sought, and obtained, investor funding. UberCab shortened its name to Uber in October 2010 and in May 2011, Uber launched in New York. By the end of the year, Uber had expanded to Seattle, Boston, Chicago, Washington D.C., and Paris.

Rapid expansion into other overseas markets followed in 2012 and 2013. Today, Uber is available in hundreds of cities in dozens of countries, with new locations being added constantly.

Company's M.O. Spawns Myriad Disputes

As Uber has expanded it has also experienced disputes with governments, taxi companies, workers, riders, other ride share companies, and even the media.

The list of complaints against the tech company is long (for example, see this piece in Fortune) and varied, but generally breaks down along these battle lines:

  • Local governments have opposed Uber because the company is difficult to define and therefore to regulate. Uber considers itself a technology company, not a transportation company, and is not subject to regulations that traditional taxi services are.
  • Taxi companies make some of the same arguments that governments do—namely, that Uber is not subject to the same regulations as established taxi companies (i.e. taxes and licensing fees)—and that this creates unfair competition.
  • Some Uber customers have reportedly been assaulted by drivers. One Uber driver hit and killed a six-year-old girl, while another Uber driver has been accused of rape. Some of these issues occurred with drivers who passed Uber’s background check.
  • Uber drivers have staged protests against the company, calling for improved pay and treatment and expanded benefits.
  • Uber competitor Lyft has accused Uber of playing dirty to damage its business.
  • An Uber senior executive suggested digging up dirt on a journalist after she wrote a piece criticizing Uber. Uber also tried to plant a fake story about its drivers in LA Weekly, again in response to critical press.

Uber Drivers: Contractors or Employees?

The latest Uber controversy involves the question of whether its drivers are independent contractors—as Uber alleges—or employees, as a large number of drivers allege in class action lawsuits across the country.

Uber maintains that the freedom and autonomy that its drivers enjoy are major reasons why they drive for the company, saying, “As employees, drivers would drive set shifts, earn a fixed hourly wage, and lose the ability to drive using other ride sharing apps as well as the personal flexibility they most value.”

Uber drivers, on the other hand, argue that, based on the “litany of detailed requirements imposed on them by Uber” and the fact that they’re “graded, and are subject to termination, based on their failure to adhere to these requirements,” they are in fact Uber employees.

There is no clear-cut answer to the question of whether or not a worker is a contractor or an employee. Even the Supreme Court has indicated that there is no single method for determining whether an individual is an employee or independent contractor. The issue will likely come down to an interpretation of the “economic realities” test put forth by the Department of Labor and adopted by state labor commissions. The six-factor DOL test involves issues such as:

  • The extent to which the work performed is an integral part of the employer's business
  • The permanency of the worker-employee relationship
  • Which party supplies the tools, materials, and equipment needed to perform the work
  • The degree and nature of control exercised by the employer
  • The worker's opportunities for profit and loss

Based on these types of broad definitions, Uber drivers probably aren’t wholly employees or wholly independent contractors. If cases go to trial, jury members will make a determination on drivers’ worker classification based on factors similar to those described above.

The Implications of Worker Classification

Uber drivers are primarily focusing on three types of claims in lawsuits:

  • They want to be reimbursed for business-related expenses such as insurance and vehicle maintenance (Uber drivers currently pay for all of their work expenses).
  • They want to be paid the entire amount of any tip or gratuity that a rider leaves for the driver (Uber doesn’t allow drivers to accept tips).
  • They desire greater transparency about their driver ratings as well as company decisions about when and why drivers are deactivated from the Uber platform.

But by asking to be classified as employees, the drivers open the door for a much wider set of perks. Employees are entitled to a number of benefits and protections, including minimum wage and overtime pay, anti-discrimination laws, employer matching for Social Security deductions, and workers’ compensation.

So while Uber class action members are not explicitly asking for these benefits, they would likely be owed them if they’re reclassified as employees.

This has implications not only for Uber, but also for similar companies with a 1099-worker business model. Uber competitor Lyft, delivery services GrubHub, DoorDash, Instacart, and Caviar, cleaning services Handy and Homejoy, and other sharing economy startups classify workers as contractors—and save big on labor costs. Like Uber, many of these companies are facing lawsuits that seek worker reclassification.

Freelancers were hailed as the secret weapon of the on-demand economy. Now, with numerous lawsuits in the works, many startups may be forced to fundamentally alter their worker models.

Judge Rejects $100 Million Settlement

In August 2016, a federal judge rejected a $100 million class action settlement between Uber and 385,000 drivers in Massachusetts and California. The judge argued that the settlement, which had been criticized by many drivers, was not "fair, adequate, and reasonable."