Car service firms Uber and Lyft both failed to convince judges that their drivers are independent contractors rather than employees today, in two cases brought in California that may have a significant impact on the two companies' business models, and the wider "sharing economy." Judges presiding over the two lawsuits, brought by Uber and Lyft drivers who argue that they are entitled to minimum wage and other employee benefits, said that juries would have to decide whether drivers counted as employees or contractors.
Summary judgements for the cases were heard back in January, with San Francisco district judges Edward Chen and Vince Chhabria suggesting at the time that legal precedents would make Lyft and Uber drivers technically employees under state law. But after two months, the judges in both cases were unable to reach a conclusion, blaming both the new type of employment model and California's labor laws.
Judges say the law "provides nothing remotely close to a clear answer"
"California's outmoded test for classifying workers will apply in cases like this," Chhabria said, "and because the test provides nothing remotely close to a clear answer, it will often be for juries to decide." The San Francisco judge warned that the that the jury in the Lyft case he was sitting on "will be handed a square peg and asked to choose between two round holes." Edward Chen, presiding in the Uber case, echoed Chhabria's sentiments, writing in court documents that the traditional test of employment "evolved under an economic model very different from the new 'sharing economy'," and that Uber's business model created "significant challenges."
Uber was valued at more than $41 billion in December 2014, while Lyft is believed to be worth $2.5 billion. If the juries do agree that drivers for companies such as Uber and Lyft count as full-fledged employees, then both companies could take a hit to their valuation, as they're forced to pay out social security, workers' compensation, and unemployment insurance. The rulings could also apply in other states, and start to deflate the values of a host of other companies that require on the contractors sourced from the new sharing economy for their workforce, such as grocery delivery app Instacart, or housecleaning service Handy.