Uber accused of misclassification by competitor in novel legal move

A federal lawsuit has been filed accusing Uber Technologies Inc. of misclassifying workers, but by an unlikely plaintiff under a novel legal theory; a limousine company says that the hired car giant uses a predatory and illegal pricing model to purposefully undercut and kill competing companies.

Diva Limousine Ltd. filed the suit on behalf of itself and those similarly situated on Monday in the Northern District of California, and its lawyers say that it is the first of its kind to approach misclassification from a competition angle.

"The company has not been forced out of business. However, its practices and those of other similar companies have had to change as a result of Uber's entrance into the market and pricing practices," said Michael A. Geibelson of Robins Kaplan LLP, who represents Diva. "Those companies continue to lose money every day as their prices are compared to Uber's, which are based on an illegal model."

"They've done what they can to fight for the market share but what they have not done is copy Uber's unlawful practices. There's only so much Diva can do if it wants to be a law abiding citizen," said Ashley Keller of Keller Lenkner LLC, co-counsel for the plaintiff.

Uber did not respond to a request for comment.

The lawsuit details violations of the California Unfair Competition Law and California Unfair Practices Act, and alleges that Uber provides its services below cost in order to eradicate competition. The complaint also says that that model is predicated on the misclassification of drivers as contractors rather than employees under the new standard laid down in a recent state Supreme Court decision.

On April 30, the state Supreme Court established the employee-presumptive "ABC test" for contractors in its decision in Dynamex Operations West Inc. v. Superior Court, 2018 DJDAR 3856. The test establishes three distinct conditions to classify a worker as a contractor in wage order claims.

Those prongs are that the worker is free from the control of the hirer, the worker must perform work outside the core purpose of the company, and the worker must have an established business independent of the hirer in the same industry.

The Dynamex opinion notes that the wage orders do not just protect employees, saying, "Wage orders are also clearly intended for the benefit of those law-abiding businesses that comply with the obligations imposed by the wage orders, ensuring that such responsible companies are not hurt by unfair competition from competitor businesses that utilize substandard employment practices."

The classification issue is a hotly contested one particularly in the gig economy, and employers' attorneys have called the ABC standard virtually impossible to satisfy.

Even after Dynamex, however, arbitration agreements have preempted attempts by workers to assert employee status. As a competitor, Diva does not have that problem.

"That makes it a straightforward vehicle for the courts to address a question [Uber has] avoided answering for a long time," said Keller.

"Uber's been very successful in snuffing out class suits through motions to compel individual arbitration. Uber won't be able to do that here, as plaintiffs are competitors who didn't enter any arbitration agreements. They will have to face the music," said Ryan Wu of Capstone Law APC, who is not involved in the case.

"I think the UCL claims here, based in part on Dynamex, pose a significant risk to Uber's business model, particularly in California," Wu said.

"Ultimately, the critical issue here is going to be standing; whether a competitor has standing or the ability to say, 'I can be the one to seek redress here. I am the one who gets compensated,' even though the ostensibly illegal action is targeting someone else," said Daniel H. Handman of Hirschfeld Kraemer LLP.

Handman added that courts have recognized competitor standing under the Unfair Competition Law, but the battle will be uphill to connect Divo's market share woes with Uber's misclassification.

"There's a whole host of reasons why that could have happened, so drawing a straight line between one act or another or one cause and another effect is a difficult task," he said.

Handman said regardless of how early challenges break in court, he would expect the case to end up in the 9th U.S. Circuit Court of Appeals.

Aashish Y. Desai of Desai Law Firm called the strategy "brilliant," and said the suit's use of Dynamex to try and level the business playing field is in the spirit of competition law.

"What they're doing here is saying, 'We're a business here, we have to classify our drivers as employees and so should you.' Obviously, it's a huge competitive advantage for the company classifying drivers as independent contractors," he said.

Similarly, Geibelson said that the lawsuit is protective of both the business environment and workers.

"We're not about to engage in a race to the bottom of employment practices on the backs of drivers. The burden of the lower prices is being borne by the drivers who can least afford it," he said.