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Uber and lawsuits---they just seem to go together. Last week, a new class action complaint was filed against the company over Uber's failure to secure drivers' data in a breach. In another court, a Northern California district judge ruled that a jury will decide if Uber's drivers should be classified as independent contractors or employees. And, earlier this month, a Memphis transportation company sued Uber and Lyft for operating without proper licensing and insurance. Similar suits have been filed in Miami, Philadelphia, Atlanta, and Houston.
The five-year-old, multibillion-dollar company's troubles don't stop there. Uber faces a continuous onslaught of litigation in the US for stiffing drivers, swindling taxi companies, eschewing traditional insurance obligations, and skirting regulations---or so the drivers, companies, and state or district attorneys say.
Some of this comes with the territory. As a magnet for lawsuits, Uber has joined the elite ranks of tech giants, like Google, Facebook, and Apple, which fight seemingly constant legal battles over patents, privacy, or personnel. The dynamic at work is pretty clear: As tech startups expand from profitless, garage-grown prototypes to billion-dollar, multinational enterprises, they push the boundaries of regulations while gaining attention, customers, and funding. Legal conflict---and, sometimes, rank fortune hunting---are sure to follow.
"The law and regulatory frameworks just aren't equipped to keep up with technology," says Southern Methodist University law professor and attorney John Browning. The companies can face litigation that ultimately leads to regulatory overhauls like the expansion of California's ridesharing rules in 2013 following legal battles with Uber, Lyft, and Sidecar.
Then there are the vested interests---in Uber's case taxi or limo companies---which are bound to fight back in court. "Any business that is starting to have a measure of success in the tech world, like Uber, is going to have an early flush of success and then people are going to have their hands out. Lawyers are going to look for the deepest pockets," Browning says. In fact, sources close to Uber say there has been a spike in lawsuits filed against the company following every announcement of a new funding round.
But when it comes to litigation, Uber and other sharing economy startups are different from the Googles and Facebooks of the last startup wave. Because unlike search or social media, Uber, Lyft, Airbnb, and even Instacart operate both on our phones and on the streets. We sit in Uber cars, we walk past them on the street, and we use our phones to flag down their drivers---so some of the litigation facing Uber has to do with "real-life" problems, like injured passengers or bystanders from car accidents.
Uber is also competing with entrenched taxi and limo companies, which means there's already a robust regulatory infrastructure standing by to issue licenses, mandate insurance, and police new companies. "Since Uber, Airbnb, and Lyft are going into heavily regulated businesses at the local level and providing something not completely different than what already exists, it's natural there are lots of regulatory and insurance issues," says Arun Sundararajan, a professor at the NYU's school of business who studies the sharing economy. In other words, Uber and its ilk have to fend off the concerns of both its competitors and existing regulators.
Plus, cab companies have already set certain expectations about what driving a cab looks like and what benefits drivers should have. "Taxi drivers in most cities are unionized," Sundararajan explains. "It used to be that you were an independent contractor or you worked for a large company. Now we've got this middle ground, and I think the worker lawsuit is a product of the fact that we haven't yet defined this new relationship." It's no surprise then that Uber is facing litigation over tipsand employment status, which would affect compensation and benefits the company could be required to provide its workers.
The problem, in part, could also be company culture. "Uber's culture is more command and control than community-building," Sundararajan says. "Uber drivers could say this isn’t good, let’s take it up with the company instead of going to court. But maybe they feel they can’t take issues to the company."
Despite repeated requests, Uber declined to comment on specific details for this story. But a company spokeswoman did issue a statement saying that "there are a number of anti-competitive efforts by the taxi industry to limit consumer and driver choice, but we will continue to work---as we have in the 23 jurisdictions that have passed permanent ridesharing regulations---to ensure that riders and drivers have access to safe, reliable, and hassle-free transportation options."
Meanwhile, it's safe to say that smaller sharing economy startups, like Feastly and TaskRabbit, may face their own raft of lawsuits as they grow. "There's a readjustment going on and, in any process of readjustment, it’s guaranteed to be a misfit between the old regulations and the new way," Sundararajan adds. In other words, put your lawyer on speed dial.
