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Getting a grip on the gig economy via Uber

May 10th, 2016  |  Joy Waltemath

A growing gig economy. An April 20, 2016, Boston Globe article quotes a 2014 study commissioned by the Freelancers Union saying that 53 million Americans are independent workers, about 34 percent of the total workforce. It also cites a study from Intuit predicting that by 2020, 40 percent of U.S. workers will be independent workers. The Wall Street Journal suggests that although there has been a large growth in “tenuous work arrangements,” that growth has taken place largely offline—in traditional jobs and industries where more and more workers find themselves in contract jobs. As for the online gig economy, however—pundits estimate that it might be “mostly Uber.”

What does it mean for employment law? Perhaps because of its bellwether status, Uber is facing litigation on a number of fronts. Below are some of the most notable examples, which can serve as an illustration of the types of issues a company operating in the new model may face:

Misclassification—Uber proposes $100M settlement. Just weeks after a federal district judge for Northern California denied preliminary approval to a $12M class action settlement to resolve Lyft drivers’ misclassification claims—because the settlement was based on an “artificially low estimate” of damages (Cotter v. Lyft, Inc.)—Uber said April 21st that it was prepared to pay up to $100M to drivers in California and Massachusetts to settle their Rule 23 class actions, also based fundamentally on charges it misclassified its drivers as independent contractors. Notably, however, the proposed settlement agreement maintains the drivers’ status as independent contractors, the same approach taken by plaintiffs’ counsel in both the Lyft and Uber proposed settlements.

What’s the deal? In a proposed settlement agreement filed in the Northern District of California, Uber says it is ready to resolve two class actions: O’Connor v. Uber Technologies, Inc., No. CV 13-03826-EMC, a suit brought by California drivers, and Yucesoy v. Uber Technologies, Inc., No. 3:15-00262-EMC, involving Massachusetts drivers. According to the motion for approval, the settlement entails significant nonmonetary relief in addition to the $100m haul: Uber will only be able to deactivate drivers from the Uber platform for sufficient cause. Also, Uber will fund and facilitate the creation of a “driver association.” Uber has agreed to meet on a quarterly basis with elected driver leaders, who can create a dialogue for further programmatic relief that comes from the drivers themselves, to discuss and, in good faith, try to address driver concerns. The organization will not be a union and it will have no right or capacity to bargain collectively, according to court documents. (This type of apparently employer-dominated “meet and confer” association potentially could be considered unlawful under the National Labor Relations Act Section 8(a)(2), but in any event, because the proposed agreement retains the drivers’ classification as independent contractors rather than employees, the NLRA would not apply.)

Enter the Teamsters. With the ink barely dry, the Teamsters union announced it is willing to help create those “driver associations” the settlement contemplates. Teamsters Joint Council 7 on April 22 announced it will help create a so-called driver “association,” despite the fact that the Uber settlement expressly preserves the drivers’ status as independent contractors (thus, not covered employees under the NLRA). But the union said it has received “overwhelming outreach” from Uber drivers and, accordingly, has announced plans to form an association for workers in the California rideshare industry generally.

The union already has formed an association for Uber drivers in Seattle under the App-Based Drivers Association (ABDA). In the past year, San Leandro, California-based Teamsters Local 853 has organized hundreds of tech company drivers in Silicon Valley, adding to the union’s 1.4 million members in the U.S. and Canada.

CEO must face price-fixing claims. Weeks before Uber’s proposed $100M settlement of misclassification claims designed to protect the company’s business model, a federal district court in New York ruled that the CEO and co-founder of the now-ubiquitous rideshare app must defend class allegations that he orchestrated and facilitated an illegal price-fixing conspiracy with Uber drivers. Denying the CEO’s motion to dismiss an antitrust suit brought under the Sherman Act and New York’s Donnelly Act, the court found the plaintiff, a rideshare consumer, adequately alleged both a horizontal and vertical price-fixing conspiracy between the technology company and its drivers—who may or may not be “employees,” a dispute currently unfolding in district courts elsewhere. “The fact that Uber goes to such lengths to portray itself—one might even say disguise itself—as the mere purveyor of an ‘app’ cannot shield it from the consequences of its operating as much more,” wrote the court, rejecting a defense that has failed Uber in employment suits against the company as well (Meyer v. Kalanick).

Implausible? The plaintiff alleged that Uber CEO and co-founder Travis Kalanick conspired with Uber drivers to use a pricing algorithm to set the prices charged to riders, thereby restricting price competition among drivers to the detriment of riders. In the court’s view, the plaintiff adequately alleged both a horizontal conspiracy and a vertical conspiracy. While the defendant argued that such a conspiracy was “wildly implausible” and “physically impossible,” as it would require an agreement “among hundreds of thousands of independent transportation providers all across the United States,” to the court, the plaintiff convincingly countered that “the capacity to orchestrate such an agreement is the ‘genius’” of the company which, “through the magic of smartphone technology, can invite hundreds of thousands of drivers in far-flung locations to agree to Uber’s terms.”

The plaintiff adequately pleaded a plausible relevant market—the “mobile app-generated ride-share service market”—and adverse effects in the relevant market, alleging that the CEO’s actions have further restrained competition by decreasing output; Uber’s market position has already helped force a competitor out of the marketplace; and Uber’s dominant position and considerable name recognition has also made it difficult for potential competitors to enter the marketplace.

But arbitration agreement does its job for Uber. Federal district courts in Florida and Maryland very recently compelled drivers to individually arbitrate their claims against Uber. In Maryland, putative state law tort, contract, and statutory class action claims by an Uber driver were forced into individual arbitration by virtue of the arbitration provision in its Rasier Agreement (Rasier is a subsidiary of Uber). The court found the agreement neither procedurally nor substantively unconscionable, upheld the class action waiver, and found the provision’s delegation clause clear and unmistakable. The arbitration provision was not a condition of employment and drivers were expressly given 30 days to opt out, the court pointed out (Varon v. Uber Technologies, Inc.).

Similarly, Florida-based Uber drivers were required to individually arbitrate claims they were wrongly denied minimum wages and overtime. Granting Uber’s motion to compel arbitration and strike the drivers’ class/collective allegations, the Florida court noted that the drivers could have opted out of the arbitration provisions of the company’s driver services agreement, but they failed to do so, and so must proceed accordingly (Suarez v. Uber Technologies, Inc.).

An applicant is not required to agree to the arbitration provision as a condition of becoming a driver. Drivers may opt-out of the arbitration provision within 30 days, and that option is pretty clear: There is a notice in larger font in the first section of the arbitration provision, entitled “Important Note Regarding this Arbitration provision,” and in a large font, bold, and uppercase, it states:

WHETHER TO AGREE TO ARBITRATION IS AN IMPORTANT BUSINESS DECISION. IT IS YOUR DECISION TO MAKE, AND YOU SHOULD NOT RELY SOLELY UPON THE INFORMATION PROVIDED IN THIS AGREEMENT AS IT IS NOT INTENDED TO CONTAIN A COMPLETE EXPLANATION OF THE CONSEQUENCES OF ARBITRATION. YOU SHOULD TAKE REASONABLE STEPS TO CONDUCT FURTHER RESEARCH AND TO CONSULT WITH OTHERS – INCLUDING BUT NOT LIMITED TO AN ATTORNEY – REGARDING THE CONSEQUENCES OF YOUR DECISION, JUST AS YOU WOULD WHEN MAKING ANY OTHER IMPORTANT BUSINESS OR LIFE DECISION.

Another section is entitled “Your Right to Opt Out of Arbitration.” It specifically states: “Arbitration is not a mandatory condition of your contractual relationship with the Company. If you do not want to be subject to this Arbitration Provision, you may opt out of this Arbitration Provision by notifying the Company in writing of your desire to opt out of this Arbitration Provision.” The 30-day period is explicitly explained, the provision states drivers who opt out will not be subject to retaliation, and there is even a specific email address: optout@uber.com.

As arbitration provisions go, this one took pains to ensure that drivers know what they are consenting to and are doing so freely. The Maryland court crisply observed that had the driver “truly believed” that any aspect of the arbitration provision “was unconscionable or otherwise not to her liking, she had no obligation whatever to agree to it.”

Plausible allegations that Uber is ‘common carrier’ responsible for drivers’ sexual assaults.

But Uber was not so successful, at least at the motion to dismiss stage, against claims it was legally responsible for sexual assaults committed by two of its drivers.  “Like a police officer who rapes a detained woman, an employee who throws a hammer at a fellow worker in a fit of irritation, or an asylum officer who abuses his role to corner female immigrants and molest them, sexual assault by an Uber driver may be incidental to the operation of its business,” a federal district court in California reasoned, refusing to dismiss claims asserting vicarious liability against the self-proclaimed “broker of transportation services” (Doe v. Uber Technologies, Inc.).

On motion to dismiss, the court would not find as a matter of law that the Uber drivers who sexually assaulted two female passengers were independent contractors, nor would it rule out a finding that the company operated as a common carrier for purposes of tort liability. As for the women’s direct negligence claims, the court threw out the negligent hiring, retention, and supervision claims involving one driver because no facts sufficiently alleged foreseeability, but those same claims involving another driver, as well as fraud claims against Uber, also survived

Employee status. Uber argued that the women had not alleged sufficient facts to establish an employment relationship between Uber and the two drivers alleged to have sexually assaulted them when they were Uber passengers, but the court disagreed. It cited the following allegations: Uber sets fare prices without driver input and drivers may not negotiate fares, but Uber may modify the charges to the customer under certain circumstances; Uber retains control over customer contact information; Uber’s business model depends upon having a large pool of non-professional drivers with no apparent specialized skills; and Uber retains the right to terminate drivers at will. Uber allegedly also controls how drivers may offer rides through the Uber App, including when they must accept ride requests when logged into the App or face potential discipline, and requires drivers to dress professionally, send customers text messages, play only certain types of music, if any, and open the door for customers. Uber asserted that drivers are independent contractors, but its evidence was not enough to convert the question into a matter of law.

Vicarious liability. Alternately, Uber claimed that the alleged assaults were outside the scope of a driver’s duties and could not support vicarious liability. Carefully reviewing the state of California law, the court found no state law rule that sexual misconduct would always bar vicarious liability on the part of an employer, as Uber argued. Instead, at the pleading stage, the court found reason to allow the complaint to move forward, especially where, unlike in cases of sexual harassment, the women here did not have separate remedies under Title VII or state law. It could not determine as a matter of law that sexual assault by Uber drivers was always outside the scope of employment if the drivers were ultimately found to be employees.

Common carrier liability. The complaint also alleged that Uber was a common carrier vicariously liable for its employees’ and agents’ intentional and negligent torts, whether or not they were committed within the scope of employment. Uber said it was merely a “broker” of transportation services, but the court was not persuaded. Common carrier liability is imposed based on a broad duty to protect passengers from assault. Here, the women alleged critical underlying facts, including that Uber’s services are available to the general public and that Uber charges customers standardized fees for car rides, which supported the claim that Uber “offers to the public to carry persons.” Reiterating that these were “close questions,” the court found them more appropriately resolved later in the litigation, and it would not dismiss the women’s vicarious liability claims of assault, battery, false imprisonment, and intentional infliction of emotional distress.

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