Class Action Ruling: Is Uber Over?

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Edward M. Chen, U.S. District Court Judge for Northern California, may be remembered as a unicorn-killer after granting Uber drivers class-action standing to contest their compensation paid by the company for on-demand transportation services provided over the past six years. More than 160,000 people are qualified to join the suit, according to the order.

If the suit resulted in only the level of compensation recently awarded by the California Labor Commission to driver Barbara Berwick, who received mileage compensation and tolls she paid, plus interest, the ruling is a disaster for Uber. Berwick drove only 6,468 miles for Uber, a relatively low amount of miles, and was paid $4,152.20 in compensation. Multiply that low figure by 160,000 drivers and the company faces approximately $665 million in liabilities in California in this single law suit. The actual figure could be substantially higher, if the average driver has driven more miles than Berwick.

Looks bad for Uber. Yet Uber is far from over, because Uber funded up to deal with this conflict, knowing it was undermining existing employment models while competing with the entrenched taxi and limousine industries. With $7 billion in funding, and a valuation currently north of $50 billion, this unicorn will be hard to take down.

This ruling is only a bargaining chip until the class-action suit is complete — until then, Uber has plenty of leeway to establish a new relationship with drivers. We’ve suggested that on-demand companies need to treat contractors who provide services as customers, with the same kind of responsive attention the company’s other customers, riders, receive. Uber, in fact, has been starting to talk this way.

First off, Uber — or any on-demand firm — needs to establish that their 1099 drivers are not to be treated as low-priced cogs, infinitely replaceable with other drivers, because no customer wants to hear that they are not worth what they think they are. “The customer is always right” has come home to roost, defying the argument that unit economics are the only vital factor in an on-demand service. In fact, intangibles like friendliness and satisfaction among drivers are more important than getting the lowest price for a driver, as rider-customers are in direct interaction with the 1099 driver and not the company. Well-kept personal vehicles are infinitely more inviting than a taxi cab, and riders choose on-demand partly to get away from the taxi industry. The happiness of the drivers, their sense of accomplishment and job satisfaction is an essential feature of the rider experience.

And if Uber wants to ride the claims that it is the biggest job creator of recent memory, it needs to treat driver-customers with greater care and feeding than the rider, who’s looking for a cheap, pleasant ride. This care and feeding requirement in the relationship with drivers should focus on maximizing their paid time, increasing their share of the take rather than decreasing it, and creating novel programs, such as insurance pools and savings programs that drivers can opt into to deepen their relationship with the company. There are immense profits to be realized in those insurance and savings programs, as well.

Lyft is winning drivers away from Uber by taking better care of the driver relationship and focusing increasing driver compensation. Uber has gone so far as to threaten drivers who provide rides for both companies.

Inverting the employee relationship and promoting drivers to the status of customer, with loyalty and other programs that help them better manage the flexibility offered by on-demand work, explicitly changes the dialogue. Judges are aware of this. Rulings like the well-reasoned legal explanation Judge Chen delivered in support of his decision are full of negotiating hints the company can use. For example, Chen writes:

Ultimately, while the Court concludes that Plaintiffs satisfy all of the Rule 23(a) criteria for their Tips Claim, 2 the Court is not currently convinced the Plaintiffs have established adequacy with respect to their expense reimbursement claim.

This indicates that expenses incurred by drivers may be treated differently than they are today, as business expenses incurred by the driver in pursuit of revenue. Uber has leverage in balancing expense claims against better compensation overall, but is getting a clear signal that tips are intended for the driver alone. We can imagine a variety of compensation structures, facilitated by Uber’s existing logistics systems, that could be implemented to improve drivers’ take-home compensation, as well as help drivers document direct costs for tax deduction purposes. Of course, the tax code needs to be adjusted, too, but this is part of the message the court is sending.

We’re seeing a real, substantive negotiation of new roles in the economy. This is not a matter of a “third type of worker,” but the evolution of work in an advanced economy that no longer needs full-time labor waiting on the bench because of improved logistics. It is much more likely that we’re seeing the emergence of workers as customers, who can offer many different facets of value to the economy through those same advanced logistics systems and, consequently, have the power to choose and influence others who share their values. In this case, those values revolve around owning fewer cars per capita, enjoyable rides in clean pleasant vehicles driven by people who are not treated as being of the lowest possible value — think of every taxi cab joke you’ve ever heard, and it’s the drivers who are denigrated. That’s what is over.

Uber seems to be prepared for the battle, but it must remember that, at the end of the day, if a grumpy driver ruins a rider’s trip, both the rider and driver are probably short-lived customers. Having gone to expense of capturing both driver and rider business — treating both as customers with a cost of acquisition and lifetime value that should be grown from today’s base — Uber needs to adjust its rhetoric and change its policies to emphasize driver success. Then, it will be in a position to make even greater changes in the market. Without drivers and riders, though, the game will be over.

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