Uber’s Worker Business Model May Harm Competition, Judge Says

Uber‘s alleged misclassification of drivers as independent
contractors could significantly harm competition and violate the
spirit of antitrust laws, a federal judge ruled.

The ruling, although not a final decision in the case, is a
significant warning to ride-hailing companies. It signals how a
2018 California Supreme Court case and future worker classification
laws could open the floodgates to worker misclassification and
antitrust claims.

Judge Edward Chen of the U.S. District Court for the Northern
District of California declined to dismiss all of the claims
brought against Uber by Los Angeles-based transportation service
Diva Limousine, saying the company established a causal link
between Uber’s behavior and real economic harm being felt by
competitors.

Driver misclassification could save Uber as much as $500 million
annually just in California, according to Diva’s lawyers.

“Diva’s allegations support the inference that Uber could not
have undercut market prices to the same degree without
misclassifying its drivers to skirt significant costs,” the judge
wrote in the June 20 ruling.

Unlike employees, independent contractors aren’t entitled to
benefits such as health care, unemployment insurance, minimum
wages, and overtime.

An attorney for Diva said he was pleased with the court’s
decision and that it was a warning that the company couldn’t skirt
California labor laws.

“There’s an acknowledgement here that Uber not only harms its
drivers but also that its conduct crosses the line from robust
competition to unfair competition,” said attorney Aaron Sheanin of
Robins Kaplan LLP. “And that injures its competitiors, including
Diva.”

Uber didn’t return a request for comment.

Overall, Uber was only able to get part of Diva’s complaint
fully dismissed—specifically, its claims under the state’s Unfair
Practices Act. Diva’s claims under the California Unfair
Competition Law can proceed once it amends its complaint to address
jurisdictional issues and other legal arguments.

Diva’s lawyers have 30 days to refile an updated complaint which
is likely to move forward given the judge’s ruling that the claims
have merit.

The ruling was based in part from language drawn from the
California Supreme Court’s April 2018 ruling in Dynamex Operations
West Inc. v. Superior Court. That decision made it harder for
California employers to classify workers as independent contractors
rather than employees. It also condemns misclassification as a type
of unfair competition.

Uber identified Dynamex in regulatory filings as a long-term
potential risk factor for its business success.

The case is Diva Limousine, Ltd. v. Uber Technologies, Inc.,
N.D. Cal., No. 3:18-cv-05546, Order Issued 6/20/19.

Culled from news.bloomberglaw.com