The ‘Uber’ revolution has hit the world hard. Is it here to stay? Have we been ‘Uber-fied’?
Uber And The Rise of The ‘On-Demand’ Economy
We want goods and services and we want them now. Everything is ‘on-demand’. Hey, we’re entitled to it. Well, that’s exactly what consumers think and expect in this hyperconnected age of technology innovation where tech companies give us immediate access to goods and services in a cost-effective, scalable manner.
From groceries to home services, the surplus of rooms, freelancers, drivers and restaurants has formed the foundation for a stack of new start-ups offering us simplicity and convenience. There’s Postmates, DeliveryHero, DoorDash, GrubHub, Lyft, Uber and Airbnb, just to name a few.
And the business world has cottoned on fast, realising there was not only a gap in the market: it was lucrative one. One of the most highly valued tech start-ups, Uber, founded in 2009, made it possible to hail a cab using your smartphone and has some taxi and limousine industry pretty peeved. Late last year, company raised $1.2 billion at a valuation of $40 billion. According to Business Insider (July 2014), over $4.8 billion in capital has been invested in on-demand companies, with $2.2 billion invested in the 2013/14 year financial year alone.
But there’s one lawyer who’s hell bent on shining a light on why these companies are so profitable: and she’s taking on the ‘on-demand’ tech companies one by one.
The Lawyer Behind The Suits
A Harvard law school graduate and Boston-based employment attorney who cut her teeth on “wage and hour” cases, Liss-Riordan, 45, has spent much of her legal career pursuing employers for allegedly short-changing their employees and has filed class actions for all manner of clients in a range of industries from truck drivers, cable installers, exotic dancers and FedEx drivers, to hotels and country clubs.
Liss-Riordan first started looking into employment law after she worked with outspoken lawyer and former congresswoman Bella Abzug right out of college. At Lichten & Liss-Riordan, she now specialises in worker misclassification lawsuits targeting companies who illegally classify their workers as independent contractors, rather than regular employees in order to avoid paying them federal law benefits. The biggest win of her career to date was against against Starbucks, nailing a $23.5 million settlement from the company for allowing supervisors take a cut of pooled tips.
And now, she’s got her sights on the ‘on-demand economy’, the plethora of tech start-ups providing delivery and transportation services via apps. With recent class action suits against Uber, and claims against Postmates, Caviar, Lyft and Homejoy, it seems like she’s on a roll. So what is it about these businesses that has her all riled up?
The Premise of The Law Suits: Employees or Freelancers?
The first case Liss-Riordan took on (which is ongoing) concerned Uber keeping half of its’ driver’s trips. But as Liss-Riordan looked more closely at the Uber business model, she formed the view that these companies were skirting their employment responsibilities by paying the people who were the engine room of their business like independent contractors while burdening them with the work expectations of employees.
Uber classifies them as ‘1099’ workers for income tax purposes – ie, freelancers responsible for their own business costs and free to work as they please. Just like Fed-ex has done in the past, Uber hires independent contractors when in fact (in Liss-Riordan’s view) they are actually employees. It didn’t work out too well for Fedex – two US courts (Ninth Circuit and Kansas Supreme Court) ruled last year that FedEx’s drivers were misclassified and were, in fact, employees. FedEx Ground now only contracts with incorporated businesses that will agree to treat their drivers as their employees.
This raises a much more serious question: if Liss-Riordan wins out on her primary class action argument, that would mean Uber has misclassified their “drivers” and it may up-end (or at least seriously disrupt) its business model. Uber would then have to pay for workers compensation, benefits, overtime, car costs, etc. So what does this mean for these types of ‘tech’ companies?
Hiding Behind The ‘Tech’ Screen: The Challenge For New Business Models
Are these businesses hiding behind a tech smoke screen in order to make bucketloads of money? Is Uber in the driver/taxi or delivery industry or is it more like Craigslist or Ebay for services, connecting people to the services they need in an easy, efficient way?
Liss-Riordan has been quoted as saying in a recent telephone interview that “just because your services are dispatched through a smartphone doesn’t make you a technology company … You’re a car service, and you have the responsibilities of being an employer of the people driving the cars.”
She has also suggested that paying the workers as employees would not destroy Uber, just decrease their crazy profits a little. And it appears that Liss-Riordan’s arguments may have some sway with the courts. U.S. District Judge Edward Chen has pointed out that Uber sets drivers’ rates, screens them, can fire them and needs them in order to make money.
“The idea that Uber is simply a software platform, I don’t find that a very persuasive argument,” the Judge said.
But Uber’s attorney, Robert Hendricks, argues that Uber is an intellectual property company, not a transportation business and that drivers are the “customers” of the company because Uber assumes no obligation to provide rides that flow in through the app.
How many businesses are passing themselves off as a tech company when really they are operating in a very specific industry in order to save the traditional operating costs of having employees? Maybe it is not that simple.
In a March ruling that a class-action lawsuit against Uber rival, Lyft, should go to trial, U.S. District Court Judge Vince Chhabria noted that Lyft drivers don’t seem much like employees or independent contractors. Perhaps labor and employment law has a long to way to come in dealing with these new world tech and service delivery industries and problems.
Arguments can easily be made on both sides of the coin but one thing is for certain: in a world where we expect everything at the press of a button (and fast) the on-demand economy, described as the “fastest and most significant shift in spending since the advent of internet commerce”, is not going anywhere soon.
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Cotter v. Lyft Inc., 13-4065 and O’Connor v. Uber Technologies Inc., 13-3826, U.S. District Court, Northern District of California (San Francisco)
Update: A San Francisco Superior Court judge ruled last Friday that Liss-Riordan and her law firm have established a California legal practice without a California license however we understand that Liss-Riordan plans to take the California bar exam in February and may even open an office in California. Stay tuned for more class actions!