Uber and Lyft Lawsuits Could Have Huge Implications for New Business Models

Separate class actions by Uber and Lyft drivers are pending in the U.S. District Court for the Northern District of California. The judges in both cases have overruled motions for summary judgment, paving the way for trial in both cases in which the drivers are seeking to be treated as employees rather than independent contractors. Professor Richard Epstein discusses the litigation in this report and in his Forbes article “Uber And Lyft In California: How To Use Employment Law To Wreck An Industry.”

Prof. Richard Epstein

Prof. Richard Epstein

Professor Epstein notes that the distinction between employees and independent contractors “is a line which in fact blurs at the middle.” Typically, an independent contractor is a firm with a staff. When the contractor is given a task, the contractor can determine how it is done. An employee is someone who is supervised by the employer. Employees usually work for only one or two people at any time. In a situation where someone is working part time, or is holding several jobs, or works from home, the distinction is not always clear.

In the Uber and Lyft business models, employees get paid through a wireless phone software application, use their own cars, and don’t wear uniforms—much as one would expect in an independent contractor situation. On the other hand, Prof. Epstein says, some of the drivers do this on a fairly repetitive basis, perhaps taking twenty or thirty jobs in a week. Also, Uber and Lyft have to protect their brands by checking on their drivers, making sure the cars are reasonably clean, and doing several other things that an employer would do. The question is whether the companies exercise sufficient oversight to push them into the employer category.

Being treated as employers might not put them out of business, but it would “blow up” their business models, Prof. Epstein opines. The companies would have much higher oversight standards to comply with, and they would have all the employment taxes that employers regularly deal with. The drivers could be unionized. What the judges in both cases have said, in effect, is that the factual situations are sufficiently unclear that the cases should be decided by juries. The problem with the class actions in these cases, says Prof. Epstein, is that the situations of the drivers are so different that it will be hard to arrive at a reasonable result that would apply to all of them. He notes that some of the drivers have other jobs, including as taxi drivers; some of them lease their cars. So there is no uniformity among the various drivers.

Prof. Epstein says that there are labor law cases that support the independent contractor status. However, the NLRB is moving against McDonald’s, among others, pursuing a theory of joint employment, as previously reported by LBN. The tricky part here is that some drivers work for both Uber and a cab company. If the cab company treats the drivers as independent contractors (as some do), it would be anomalous for those drivers to be treated as employers of Uber. Prof. Epstein suggests that the best solution in these cases is to leave the present business model alone, especially since there could be different results in the two cases pending in California. The years of appeals could damage the business.

Prof. Epstein also suggests that any partial settlement would cause more problems than it would solve. He feels that Uber and Lyft may look for a legislative solution to protect their business models. There are services that Uber and Lyft provide that a cab simply can’t or don’t.

Richard A. Epstein is the inaugural Laurence A. Tisch Professor of Law at NYU School of Law. Prior to his joining the faculty, he was a visiting law professor at NYU from 2007 through 2009. He has served as the Peter and Kirstin Bedford Senior Fellow at the Hoover Institution since 2000. Epstein is also the James Parker Hall Distinguished Service Professor of Law Emeritus and a senior lecturer at the University of Chicago. The Legal Broadcast Network is a featured network of the Sequence Media Group.