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Uber Sued for Allegedly Undercutting New York Driver Fares (1)

Nov. 6, 2019, 5:54 PMUpdated: Nov. 6, 2019, 8:49 PM

Uber Technologies Inc. is facing a new lawsuit from 96,000 drivers in New York who say the rideshare company hasn’t repaid taxes it deducted from drivers’ cut of fares.

Drivers represented by the New York Taxi Workers Alliance sued Uber in federal court in Manhattan on Nov. 6. They say the company violated contracts with drivers by deducting ride-hail taxes from drivers’ cut of fares, on top of a 20% to 28% “service fee.”

“The drivers haven’t been compensated for all of the stolen wages,” Bhairavi Desai, the group’s founder, told Bloomberg Law. “Uber was taking the cost of the sales tax and the surcharge directly out of the drivers’ pay.”

Uber representatives in 2017 acknowledged that the company underpaid New York drivers by wrongly deducting the company’s percentage cut of fares after taxes and surcharges were added to the fares, rather than taking it from the lower, pre-tax amount. The company didn’t make public the total amount paid back, but said it would average about $900 per driver.

The NYTWA this time around says Uber wrongly shifted the cost of those taxes and surcharges to drivers, in addition to charging the service fee.

Uber declined to comment.

Arbitration Agreements in Cross Hairs

The lawsuit marks the latest challenge to arbitration agreements buried in driver contracts. The company has long said those require drivers to pursue any legal action individually in closed-door proceedings outside of federal and state courts. The NYTWA says the U.S. Supreme Court recently opened the door to challenging those agreements.

Although federal law gives companies wide leeway to require employees and customers to sign mandatory arbitration agreements, it also includes an exemption for drivers engaged in interstate commerce. The high court ruled in January in a case involving long-haul truckers that drivers classified as independent contractors are covered by the exemption. That decision left unresolved the next question: whether rideshare drivers that don’t cross state lines are involved in interstate commerce.

“We think there is a pretty clear argument here that the way Uber’s model is structured that all drivers are expected to engage in interstate commerce,” Desai told Bloomberg Law.

The U.S. Court of Appeals for the Third Circuit in September rejected Uber’s argument that a group of New Jersey drivers suing for unpaid overtime were necessarily required to take their cases to arbitration. The appeals panel sent the case back to a district court judge to decide whether the drivers are engaged in interstate commerce.

“What constitutes someone working in interstate commerce is up for grabs,” says Henry Allen Blair, a professor at Mitchell Hamline School of Law in Minnesota. “The Third Circuit says it counts if you belong to a class of workers who are in interstate commerce, even if an individual employee is not crossing state lines. So I think it will be difficult to say drivers are not engaging in interstate commerce in a place like New York, where other states are nearby.”

Uber may still be able to enforce the agreements under state law, Blair said.

The NYTWA is representing three Uber drivers asking a federal judge to approve a class action on behalf of some 96,000 drivers. Those drivers didn’t opt out of an arbitration clause in their agreements with Uber.

The drivers are also challenging the company’s “upfront pricing” system. They say it allows the company to charge customers higher fares than are reported to drivers.

The lawsuit filed Nov. 6 comes the same day as an Uber stock “lockup” expired, making some $20 billion in company shares available to be sold.

Uber and other online platforms are facing increasing scrutiny over their treatment of drivers as self-employed entrepreneurs, not employees. Those workers can write off certain business expenses for tax purposes, but don’t get minimum wage, overtime pay, workers’ compensation, and unemployment insurance protections available to employees.

Uber, Lyft Inc., DoorDash Inc., Postmates Inc., and Maplebear Inc., which operates the Instacart shopping service, recently disclosed that they spent $110 million in an unsuccessful effort to kill a new California law making it harder to classify workers as contractors.

The case is Aleksanian v. Uber Technologies, Inc., S.D.N.Y., complaint filed 11/6/19.

To contact the reporter on this story: Chris Opfer in New York at copfer@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; John Lauinger at jlauinger@bloomberglaw.com