Uber Technologies Inc. drivers suing to be treated like employees are trying to add $1 billion in penalties under California’s unique “bounty hunter” statute as they prepare for trial in June.
About 240,000 current and former Uber drivers in California are covered by the lawsuit, which claims they’ve been wrongly classified as independent contractors and so should be reimbursed for expenses and tips under state law. Those claims alone could add up to hundreds of millions of dollars if the world’s biggest ride-hailing service loses.
Now the drivers are trying to attach additional state labor code violations to their suit, according to court filings. If the judge agrees, the cost of losing the case could approach Uber’s annual revenue. Over the first three quarters of 2015, the most recent period available for the private company, the startup lost $1.7 billion on $1.2 billion in revenue.
Authorities across the country are grappling with how companies in the so-called sharing economy operate within the confines of rules crafted for more traditional operations, and the California drivers’ case is one of the biggest and most advanced challenges to the business model. The trial is set to begin June 20 in San Francisco federal court, and if the judge allows the new claims, a loss could put Uber’s valuation – now more than $60 billion – at even greater risk.
Uber and ride-sharing cohort Lyft Inc. also face an effort by state regulators to impose standards more similar to those required of taxi companies. The proposal before the California Public Utilities Commission would mandate annual vehicle inspections, disclosures about fare splitting practices and longer leasing agreements.
The Uber drivers are invoking a 2004 California law that gives employees the right to step into the shoes of the state labor secretary to bring enforcement actions and lets the state keep 75 percent of any penalties won. Attorneys for employers have nicknamed the Private Attorneys General Act, or PAGA, the “bounty hunter” and “sue your boss” law in recognition of the 25 percent reward sought by workers who have filed thousands of lawsuits over the past 12 years.
Uber contends in a court filing that adding the PAGA claims, “with less than three months until trial begins, would create insurmountable manageability problems.”
Jessica Santillo, a spokeswoman for Uber, had no comment on the potential claims and liability. She said the company’s court filings speak for themselves.
Shannon Liss-Riordan, the lawyer for the drivers, said in a court filing that the PAGA claims could total $1 billion or more if allowed. She added it’s unlikely Chen would approve penalties that large because the amount exceeds Uber’s California revenue since the company’s inception in 2009.
Liss-Riordan didn’t respond to phone and email messages seeking comment on the PAGA claims.
James Evans, a lawyer who defends companies against employment suits, said he’d be surprised if U.S. District Judge Edward M. Chen doesn’t allow the PAGA claims to go forward.
And if Chen does and the jury concludes Uber’s drivers are employees, “then by definition that same proof can be used to prove the PAGA claims,” Evans said. “All you have to do is get your pencil out and accountant’s green visor and start multiplying.”
While Liss-Riordan argued in a court filing that the judge can assess whether the labor code claims have merit, Uber contends it has a constitutional right to have such claims decided by a jury. Jurors would need to make specific findings about hundreds of thousands of drivers, making the matter too complicated for the June trial, the company argued in a court filing.
The company is already appealing rulings by Chen that allowed the class action to expand to include more drivers based on his conclusion that arbitration agreements in their contracts weren’t enforceable.
Evans said Uber faces a potential multibillion-dollar liability based on the expense and tips claims alone. Then, it’s “anybody’s guess” how much more exposure Uber faces from PAGA claims because so few such claims have gone to trial in other cases. Appeals courts haven’t had a chance to weigh in to offer guidance and set standards, he said.
For the drivers to prevail on the PAGA claims, Chen must conclude Uber knew or should have known it was violating state labor laws, Evans said.
“It’s not a high threshold to meet, but it’s more than just making a mistake,” he said.
The case is O’Connor v. Uber Technologies Inc., 13-cv-03826, U.S. District Court, Northern District of California (San Francisco).