Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Uber, Lyft rebuffed in bids to deem drivers independent contractors

SAN FRANCISCO (Reuters) – Ride-hailing apps Uber and Lyft failed to persuade separate U.S. judges on Wednesday to rule that their drivers are independent contractors instead of employees, in cases that have wide implications for Silicon Valley “sharing economy” firms.

U.S. District Judges Edward Chen and Vince Chhabria in San Francisco federal court said in two rulings that juries would have to determine the status of each companies’ drivers.

Uber and Lyft face separate lawsuits seeking class-action status in San Francisco, brought on behalf of drivers who contend they are employees and entitled to reimbursement for expenses, including gas and vehicle maintenance. The drivers currently pay those costs themselves.

An ultimate finding against the two biggest car-ride services could significantly raise their costs beyond the lawsuits’ scope and force them to pay Social Security, workers’ compensation, and unemployment insurance.

That could, in turn, affect the valuations of not just Lyft and Uber but also other startups that rely on large networks of privately contracted individuals to provide rides, clean houses and the like.

Uber declined to comment and Lyft did not respond to a request for comment on the decisions.

“We are very excited about both rulings,” said Shannon Liss-Riordan, an attorney for drivers in both cases.

Uber has raised more than $4 billion from prominent venture capital firms such as Benchmark and Google Ventures, valuing the company at $40 billion and making it the most valuable U.S. startup. Lyft has raised $331 million from Andreessen Horowitz, Founders Fund and other investors.

In Wednesday’s ruling, Chen noted that Uber has the right to terminate its drivers, and that they provide a key service for the app. Both factors weigh in favor of the drivers being considered employees.

“Uber could not be ‘Everyone’s Private Driver’ without the drivers,” Chen wrote. However, the issue is not “unambiguous”, Chen wrote, so a jury should ultimately decide.

Similarly, Chhabria acknowledged the difficulty of parsing the status of Lyft’s drivers, who share common characteristics with both full-time employees and contractors.

“The jury in this case will be handed a square peg and asked to choose between two round holes,” the judge wrote.

“California’s outmoded test for classifying workers will apply in cases like this. And because the test provides nothing remotely close to a clear answer, it will often be for juries to decide,” wrote Chhabria.

Tagged with →