Can Uber & the “Gig-Economy” Survive the Test?

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UBER faces its first Class Action lawsuit

The other shoe finally dropped yesterday when US District Judge Edward Chen granted class action status to the plaintiffs in O’Connor et al v. Uber Technologies, Inc., 3:13-cv-03826-EMC. The plaintiffs, in bringing this action, have threatened the foundation of the “gig economy” by challenging the validity of the alleged independent contractor relationship upon which these businesses are built, and with it, the substantial savings resulting from the exclusive use of casual, temporary labor.

Judge Chen’s decision has raised the stakes considerably as this case moves forward to trial. Uber faces an enormous pricetag if its workforce, a class of over 160,000 drivers seeking tips and expenses due them, prevails and are found to be employees. That’s a lot of gas and mileage. But more importantly, the question remains whether Uber can continue its business without the inexpensive labor it has relied on to make it successful thus far. Should the plaintiffs win, Uber will be compelled not only to reimburse their drivers for the costs set forth in the suit, but will likely be required to convert all its workers to the standard employee model. Uber is a giant in the “gig-economy,” currently valued at somewhere between 40 and 50 billion, and where Uber goes, the rest are likely to follow. If Uber’s use of independent contractors is found to be unlawful in this case, it is likely that most other startups using this “casual labor” model will have to reinvent themselves as employers, or fail.

The Gig Economy on Edge

Chen’s decision today is the “shot heard around the world” in the startup community, as the vast majority of them have utilized this model.  They will be following Uber’s class-action battle to see how their collective futures will unfold in the courts. If Uber drivers are found to be employees, and thus must be provided those protections that employees now enjoy, i.e., items like medical insurance, workers’ compensation insurance, overtime protections and paid vacation, it is going to have an pretty monumental impact on an industry dependent on minimal labor costs.

The plaintiffs argue that the “independent contractor” model is inherently flawed. They claim that it takes advantage of the young and unemployed to manipulate them into jobs without benefits or security. The independent contractor model has been posited by those at the top as “innovative,” and it has been argued that it is being used in order to satisfy a customer demand for cheaper products. The mantra appears to be: If they buy it, it will come.

The fact is that insecure, low-paying day labor has been around, in various iterations, for centuries. This “brave new world” that ostensibly allows the American worker flexibility while keeping employment costs down, is anything but a new idea, as American industry has a deep-rooted history of misusing the model. The privileges and protections we currently enjoy as members of the employed masses, were not always the norm.

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“The labor movement in the United States grew out of the need to protect the common interest of workers. For those in the industrial sector, organized labor unions fought for better wages, reasonable hours and safer working conditions. The labor movement led efforts to stop child labor, give health benefits and provide aid to workers who were injured or retired.” –  www.history.com/topics/labor 

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UBER is not the only one…

With the growth of the on-demand business model, the case against Uber is not the only class-action filed to attempt to establish that a group of 1099 contractors is nothing but a thinly disguised group of mis-classified employees. Lyft, Postmates and Homejoy have also been sued, and similar startups that rely on the independent contractor model will surely follow, if they have not been sued already.

According to Freelancers Union.org, a non profit tracking this trend, 53 million Americans currently work as “independent” contractors. That’s roughly thirty percent of the US work force. The American Action Forum’s recent article “Independent Contractors and the Emerging Gig Economy” says independent contractors account for 28.8 percent of all jobs added between 2010 and 2014, and that the so-called “gig-economy” is already a hot topic among the candidates in the upcoming 2016 presidential campaign.

As it plays out in the courts, we might want to ask ourselves if we, as a society, are willing to take a step back in time, to a scenario where all work is “market-driven” by the wealthiest 1% among us, and workers return to living paycheck-to-paycheck without any safety net for injury or old-age; to a time before Labor Unions and the concept of collective bargaining raised the status of day laborers to that of a middle class workforce that could realistically obtain the promise of the “American Dream”– affordable housing, higher education and quality health care. Many of the contract cleaners sent out by Homejoy are literally homeless, but you pay only $19 dollars flat. Is it worth it?

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If you feel you have been mis-classified at your place of employment, contact Lazear Mack at 510-735-6316 for an assessment of your claim.

Lazear Mack, LLP
Employment Law Attorneys
436 14th Street, Suite 1117
Oakland, CA

510-735-6316

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