With Catastrophic Liability Jury Trial Looming, Uber Dumps Counsel

In what may be a very bad sign of a deteriorating defense posture for Uber Technologies’ argument that its drivers are independent contractors versus employees, a San Francisco federal judge denied Uber’s summary judgement motion and the case is now headed for what could be a catastrophic liability in a jury trial. Uber responded by dumping their attorneys Morgan, Lewis & Bockius and hiring Gibson, Dunn & Crutcher.

In litigation in the Northern District of California, plaintiff drivers represented by Shannon Liss-Riordan of Boston-based firm Licthen & Liss-Riordan are moving the case to a jury trial next year on the alleged “merits” that Uber is not just an “app” that matches independent drivers and customers in need of a ride, but rather car service that directs its employees to transport the public from place to place and then steals drivers’ tips.

In April 2010 before Obamacare increased business expenses, the Bureau of Labor Statistics estimated employer costs for employee compensation averaged $29.71 per hour, with wages accounting for 69.6 percent and benefits averaging 30.4 percent of costs. Employer costs averaged $2.62 per hour for life, health and disability insurance or 8.8 percent of total compensation. Legally mandated benefits, including Social Security, Medicare, unemployment and workers’ compensation, totaled $2.30 per hour or 7.7 percent. Paid leave, vacation, holiday pay, sick days and personal leave amounted to $2.06 per hour or 6.9 percent. Retirement and savings plans cost employers $1.32 per hour or 4.5 percent. Overtime, shift differentials and bonuses, average 73 cents per hour or 2.5 percent of total compensation.

This is why according to Businessweek Magazine, employers can save up to 30 percent by hiring an independent contractor instead of employees. Businesses avoid the cost of payroll taxes, unemployment insurance, workers’ compensation and disability, as well as pensions, sick days, health insurance and vacation time.

Because independent contractors are considered self-employed, they must pay the federal government 15.3 percent for Social Security and Medicare, as well as any state or local taxes themselves. Classifying regular employees as contractors also allows the businesses to evade minimum wage requirements and overtime mandates.

The lawsuit is titled: Douglas O’connor, et al., Plaintiffs, v. Uber Technologies, Inc., et al. claims that drivers are employees of Uber, as opposed to its independent contractors, and thus are eligible for various statutory protections for employees codified in the California Labor Code § 351.

But it also claims that Uber has a requirement under the California Labor Code as an employer pass on the entire amount of any gratuity “that is paid, given to, or left for an employee by a patron.” The lawsuit not only implies that Uber denied drivers proper wages and reimbursements for driving expenses by misclassifying them as contractors, but also that Uber’s app charges are the 100 percent of tips that are owed to the drivers.

Uber has claimed its New York drivers made $90,000 of “business income” per year, about double what a cab and limousine drivers make. But data analyzed by Princeton economics professor Alan B. Krueger and Jonathan Hall determined that Uber drivers actually make $19.04 an hour versus $12.90 for the average taxi/chauffeur/limo driver. But Uber driver-partners “are not reimbursed for driving expenses, such as gasoline, depreciation, or insurance, while employed drivers covered by the OES [Occupational Employment Statistics] data may not have to cover those costs.”

Uber told finance writer Felix Salmon that fuel, gas, maintenance, depreciation, and insurance adds about $15,000 per year in business cost to a New York City Uber driver. That works out to about $7.20 per hour. Which means New York Uber drivers after costs, make about the same as the average taxi/chauffeur/limo driver.

With Uber drivers in San Francisco making about the same money as employees, it should not be surprising they would want to sue to get the benefits of employees.

The Uber lawyer swap came after Uber lost its bid for summary judgment before U.S. District Judge Edward Chen. Their new legal team includes Gibson Dunn partners Joshua Lipshutz in San Francisco, and Theodore Boutrous Jr., Debra Wong Yang, Marcellus McRae and Theane Evangelis in Los Angeles.

Gibson Dunn also represents Uber in a case brought by a Delhi woman who says she was raped by an Uber driver while using the app. The plaintiff sued Uber for negligence and fraud in the Northern District of California.

Uber is a frequent litigation target and employs a large number of law firms. Littler Mendelson is defending Uber against allegations that the company discriminated against blind passengers; Irell & Manella and Clarence Dyer & Cohen are fighting several claims targeting Uber’s driver background checks; and Fenwick & West represents Uber in a lawsuit that challenges the legality of the company’s $4 surcharge for some trips to and from San Francisco International Airport.