SAN FRANCISCO (CN) – A federal judge indicated Thursday he will likely advance a class action that could make Uber change the way it classifies drivers as independent contractors in California.
U.S. District Judge Edward Chen refused to accept Uber's argument that it cannot be sued by a competitor for allegedly misclassifying drivers as contractors because such conduct is not considered an antitrust violation.
"They don't' have to allege a specific antitrust act," Chen said in court Thursday. "You can violate the spirit of the law or policy of the law."
Los Angeles-based Diva Limousine sued Uber in September 2018, claiming the company's flouting of state labor laws gives it an unfair advantage in the market place, allowing to offer predatory prices that harm competition. By classifying workers as contractors, Uber avoids paying overtime wages, providing health insurance or reimbursing job-related expenses, among other employee benefits.
On Thursday, Uber urged Chen to dismiss the case, arguing its reliance on independent contractors to pick up and drop off customers for its app-based ride service has helped, rather than hindered, competition.
"Low pricing, increased output, more competition – those are good things for competition as many courts have found in this context," Uber attorney Brian Rocca, of Morgan, Lewis & Bockius in San Francisco, argued in court.
Diva Limousine has accused Uber of violating California's unfair competition law, a statute designed to ensure a "level playing field" for companies offering the same goods and services, according to Diva Limousine's attorney Aaron Sheanin, of Robins Kaplan in Mountain View, California.
"We cannot in the name of competition [allow] a company to sell goods when it uses sweat shop labor," Sheanin said. "You have lower costs, but that would create unfairness between the competitors."
On claims that Uber violates California's Unfair Practices Act, Chen said he was on the fence as to whether an exemption for products regulated by the California Public Utilities Commission (CPUC) applies to Uber. Although the CPUC does not regulate the rates Uber sets for its rides, it does have jurisdiction over transportation network companies, or TNCs, such as Uber.
Chen asked both sides to submit more information on whether the CPUC has authority to regulate Uber's ride rates within seven days.
The judge also said he will likely reject Diva Limousine’s motion for partial summary judgment because it is still too early in the litigation. Chen said he was “not foreclosing that,” but was “skeptical” because he saw no “compelling need” for it. That motion seeks to force Uber to start classifying its drivers as employees in California.
Uber has for years successfully fought off lawsuits claiming it misclassifies drivers as contractors, but the class action filed by Diva Limousine is unique in that a competitor, rather than an employee, has raised the argument in court. Drivers are generally barred from suing Uber in court due to restrictive arbitration clauses that the company makes them sign.
Diva Limousine filed its lawsuit after the California Supreme Court broadened the definition of employee and made it harder for companies to classify workers as contractors in its April 2018 ruling in Dynamex v. Superior Court.
To consider workers contractors under new the standard, companies must show they do not directly control the worker, the work done falls outside the company’s regular course of business, and the worker is “customarily engaged in an independently established trade.”
Earlier this month, the Ninth Circuit expanded the reach of the game-changing state labor standard to apply retroactively, a development some experts say could disrupt the gig economy in California.
And on Wednesday, the California Assembly passed a piece of legislation that would require Uber and other companies to classify workers as employees. The bill next heads to the state Senate.
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