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Sunday, August 9, 2015

Sharing Economy Hits California Speed Bump

By Tommy Eden

In some peoples opinion the sharing economy represented by the likes of ridesharing companies like Uber and Lyft, grocery delivery service Instacart, courier service Postmates, and cleaning service Handybook are getting sued to death in California. All of the suits are over these companies’s classification of drivers, or contractors, as independent contractors instead of employees. In the case of Uber, its court case is at the stage where a judge is determining whether 160,000 drivers can sue collectively through a class action. Uber is facing charges of misclassifying workers, which will have implications for the emerging class of on-demand services in the sharing economy.

Uber relies on an army of independent contractors to rideshare, taking a 15% to 20% commission. It’s part of the "gig economy," a much-hyped new class of the service industry where workers are expected to operate like mini-businesses.

In Uber’s view, the company is merely a “technology platform” that connects drivers and passengers. Each driver gets to set their own hours and even choose whom they share a ride with. In this case Uber provided the judge testimonials of more than 400 drivers who expressed how much they enjoy and count on the flexibility they have as Uber drivers. The 400 drivers is still only 0.0025% of all 160,000 drivers in California who have ever worked for Uber, so it is very difficult to call them a class.

How much control Uber exerts over its drivers is a key legal question in the case. Uber’s claims that its contracts with drivers are simply licensing agreements while other claim they are employment contracts. However, Uber takes a certain amount of control when it fires them for low ratings or changes their fare prices.

Class action lawsuits are a huge threat to the gig economy. Not being responsible for employees’ taxes and benefits allows companies to operate with 20% to 30% less in labor costs than the brick and mortar competition, leading to over the top numbers like Uber’s $40 billion valuation or Instacart’s latest $220 million round of funding. Lose this workforce structure, either by regulation or a wave of class-action lawsuits, and there goes the gig economy.

Common Sense Counsel: This is an area of the law where Fair Labor Standard Act laws written in the 1930’s do not align with technology and innovation. Keep a watchful eye if these sharing companies can survive dead by lawsuit or regulation. Many believe that the DOL issued its July 15 employee misclassification guidance to addressing the sharing economy.

Tommy Eden is a partner working out of the Constangy, Smith & Prophete, LLP offices in Opelika, AL and West Point, GA and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at or 334-246-2901. Blog at with Links to worksheet and regulations on Blog.