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Sharing Economy Avoids Potentially Damaging Precedent With Uber Settlement

The emerging “Sharing Economy” is driven by a cheap and flexible workforce, which allows startups and established businesses alike to avoid considerable operating costs and tax obligations associated with employees.  This is all made possible by the independent contractor model.  Whether an individual is considered an independent contractor or an employee is of great consequence to the Sharing Economy, as labor laws confer many protections on employees, while independent contractors receive minimal protection.  The issue is also of great consequence for purposes of vicarious liability.

For the foregoing reasons, the case of O’Connor et al. v. Uber Technologies, Inc., et al. has been closely watched around the country.  We have previously reported on O’Connor, which involves a class of Uber drivers seeking employee status.  Although Uber classifies the drivers who utilize its ridesharing smartphone application as independent contractors, the drivers assert they are actually employees and are therefore owed certain benefits, reimbursements, and protections.

In a surprising turn of events, the O’Connor case settled on April 21, 2016, approximately two months before the start of trial.  Under the terms of the settlement, Uber will pay $84 million, which will be disbursed among a class of 385,000 drivers.  Uber will pay an additional $16 million if it goes public.  In return, the class of drivers will not pursue employee status.  The settlement, which is awaiting judicial approval, does not resolve the issue of whether individuals who utilize the Uber smartphone application to transport passengers should be classified as employees or independent contractors.

Although the settlement will not prevent Uber drivers from seeking employee status in the future, it does avoid trial in a worker-friendly forum and the potentially damaging precedent it would set.  There is little doubt the Sharing Economy could be upended if Uber drivers are deemed “employees.”  There are several other class action lawsuits against Uber currently pending in other jurisdictions.  Uber may choose to take one of the lawsuits to trial in an employer-friendly jurisdiction, in an attempt to carve out favorable precedent.

The settlement also buys Uber and other “on-demand” startups some time.  Given time, the legislature may enact laws that preserve and advance the Sharing Economy.  As Uber’s CEO, Travis Kalanick, recently stated, “Uber is a new way of working:  It’s about people having the freedom to start and stop work when they want, at the push of a button.  As we’ve grown we’ve gotten a lot right – but certainly not everything.”  In recognition of this, the California legislature has drafted legislation that governs Transportation Network Companies such as Uber without creating logistical challenges that might stifle the new and beneficial marketplace.  However, until the legislature enacts laws that address the classification of the “on-demand workforce,” class action lawsuits such as O’Connor will continue to threaten the Sharing Economy.

ABOUT THE AUTHOR: Morgan Van Buren is an associate at Tyson & Mendes LLP.  He specializes in personal injury and high net worth insurance issues.  Contact Morgan at 858.263.4107 or mvanburen@tysonmendes.com.

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