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Uber’s Worker Business Model May Harm Competition, Judge Says

June 21, 2019, 6:58 PM

Uber‘s alleged misclassification of drivers as independent contractors could significantly harm competition and violate the spirit of antitrust laws, a federal judge ruled.

The ruling, although not a final decision in the case, is a significant warning to ride-hailing companies. It signals how a 2018 California Supreme Court case and future worker classification laws could open the floodgates to worker misclassification and antitrust claims.

Judge Edward Chen of the U.S. District Court for the Northern District of California declined to dismiss all of the claims brought against Uber by Los Angeles-based transportation service Diva Limousine, saying the company established a causal link between Uber’s behavior and real economic harm being felt by competitors.

Driver misclassification could save Uber as much as $500 million annually just in California, according to Diva’s lawyers.

“Diva’s allegations support the inference that Uber could not have undercut market prices to the same degree without misclassifying its drivers to skirt significant costs,” the judge wrote in the June 20 ruling.

Unlike employees, independent contractors aren’t entitled to benefits such as health care, unemployment insurance, minimum wages, and overtime.

An attorney for Diva said he was pleased with the court’s decision and that it was a warning that the company couldn’t skirt California labor laws.

“There’s an acknowledgement here that Uber not only harms its drivers but also that its conduct crosses the line from robust competition to unfair competition,” said attorney Aaron Sheanin of Robins Kaplan LLP. “And that injures its competitiors, including Diva.”

Uber didn’t return a request for comment.

Overall, Uber was only able to get part of Diva’s complaint fully dismissed—specifically, its claims under the state’s Unfair Practices Act. Diva’s claims under the California Unfair Competition Law can proceed once it amends its complaint to address jurisdictional issues and other legal arguments.

Diva’s lawyers have 30 days to refile an updated complaint which is likely to move forward given the judge’s ruling that the claims have merit.

The ruling was based in part from language drawn from the California Supreme Court’s April 2018 ruling in Dynamex Operations West Inc. v. Superior Court. That decision made it harder for California employers to classify workers as independent contractors rather than employees. It also condemns misclassification as a type of unfair competition.

Uber identified Dynamex in regulatory filings as a long-term potential risk factor for its business success.

The case is Diva Limousine, Ltd. v. Uber Technologies, Inc., N.D. Cal., No. 3:18-cv-05546, Order Issued 6/20/19.

To contact the reporter on this story: Andrew Wallender in Washington at awallender@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Terence Hyland at thyland@bloomberglaw.com