SAN FRANCISCO (CN) – Uber has for years successfully fought off lawsuits claiming it misclassifies drivers as contractors, but a class action filed by a competitor this week could force the ride-hail giant to finally start treating drivers like employees.
Diva Limousine, a Los Angeles-based ride service, sued Uber in federal court Monday night, claiming its flouting of labor laws gives Uber an unfair advantage in the marketplace, enabling it to offer predatory prices that harm competition.
Where prior labor class actions against Uber have failed or run into road blocks, such as worker contracts that forbid participation in class actions, a competitor’s lawsuit faces no such restrictions.
“This case is unique in that it is brought by a company that does not have an arbitration agreement of any kind with Uber that would prevent adjudication in court,” said plaintiffs’ attorney Michael Geibelson, of Robins Kaplan in Mountain View, California.
The class action complaint comes on the heels of two pivotal court rulings from earlier this year that reshaped the legal landscape for gig economy workers and their employment status.
In April, the California Supreme Court broadened the definition of employee and made it harder for companies to classify workers as independent contractors in the case Dynamex v. Superior Court.
To consider workers contractors under the new standard, companies must show: they do not directly control the worker, the work done falls outside the company’s usual course of business, and the worker is “customarily engaged in an independently established trade.”
That decision raised alarms for companies like Uber that rely on cheap labor from independent contractors. In July, nine gig-economy giants, including Uber, DoorDash and TaskRabbit, sent a letter to state lawmakers urging them to override the court with legislation or executive action. They claim the new labor rules would “stifle innovation” and “decimate businesses.”
Then in May, gig economy workers fighting for employee status were dealt a setback when the Supreme Court upheld the use of class waivers in arbitration contracts, which prevent workers from teaming up to sue their employer.
“Once you can’t sue as a class, it becomes very difficult to bring these cases forward because it doesn’t pay the lawyer to go employee by employee,” Stanford law professor William Gould IV said in a phone interview.
With labor contracts barring drivers from suing as a class, Gould said a competitor suing Uber for labor violations could be one of the only ways to obtain an injunction that would force the company to start treating its drivers as employees.
“That makes this kind of action by a competitor all the more vital,” Gould said. “The only other way that Dynamex can be applied to transportation companies would be through the [state] government enforcing the labor standards.”
By classifying its drivers as contractors, Uber avoids paying minimum wage and overtime, providing health insurance and workers’ compensation and reimbursing for gas and wear and tear on drivers’ cars.
According to Diva Limousine, Uber saves $250 million to $500 million each year by classifying its drivers as independent contractors.
Meanwhile, ride service companies that treat drivers as employees cannot match Uber’s low prices. Diva Limousine has lost substantial business since Uber came on the scene, and its customers regularly ask why fares haven’t been lowered in light of Uber’s prices, according to the complaint.
“If they’re pricing below everybody else because they’re flouting the law, that’s not something that free markets are supposed to reward,” said plaintiffs’ co-counsel Warren Postman, of Keller Lenkner in Chicago.
Uber has defeated several lawsuits brought by competitors in the past, most recently in the District of Massachusetts, where a federal judge ruled in May that a Boston taxi driver couldn’t sue the company for antitrust.
U.S. District Judge Nathaniel Gorton concluded that offering lower prices does not constitute anticompetitive conduct, that the plaintiff failed to allege specific intent to monopolize, and that he lacked standing to sue because harm to one’s business is not the same as harm to competition.
Also earlier this year, the Third Circuit in March affirmed the dismissal of a lawsuit filed against Uber by the Philadelphia Taxi Association and 80 individual cab companies.
Where this case differs is its reliance on the novel legal theory that Uber’s misclassification of drivers as contractors gives it an unfair advantage and harms competition.
“To my knowledge no other competitor case has argued that Uber’s failure to comply with labor law results in artificial profit margins and unfair competition,” Geibelson said. “This is a new theory that we think is well grounded in California law.”
Diva Limousine seeks class certification, an injunction, treble damages and costs of suit.
Uber’s press team did not respond to an email seeking comment Tuesday afternoon.