Investors’ suit claims Uber misled them about passenger safety

Uber investors filed a securities class action alleging the company chose not to address a pattern of sexual assault against riders since more proactive safety and accountability protocols would increase the likelihood that it would be forced to classify its drivers as employees rather than independent contractors..

Claiming the ride-hailing company misrepresented its reputation as a flagrant violator of labor laws plagued by safety issues, investors filed the shareholder lawsuit in federal court in San Francisco on Saturday. They claim Uber lied about its business prospects in the run-up to its initial public offering.

"In other words, by, for example, establishing strict behavioral rules for its drivers, requiring them to take appropriate sexual harassment training, and implementing effective enforcement procedures to discipline, terminate, and/or report drivers who committed sexual assaults or other abuses, Uber would have increased the risk that its drivers would be deemed subject to Uber's supervision and control and hence considered employees," wrote plaintiffs' attorney John T. Jasnoch of Scott + Scott Attorneys at Law LLP.

Uber declined to comment.

The company valued at $78 billion conducted one of the most anticipated IPOs in recent history last May, raising more than $8 billion. The price of its shares plummeted 25% from $45 to $34 within three months. Uber stock has rebounded as of Dec. 7 to nearly $54 per share.

Uber has been embroiled in controversy over a California labor law that required it to classify drivers as employees. In November, it successfully won a ballot initiative, Proposition 22, which exempts app-based transportation and delivery companies from providing employee benefits. A reclassification mandate would have forced it to pay a minimum wage, and provide overtime pay and paid sick leave.

The shareholder lawsuit challenged Uber's alleged failure to address serious safety problems and claimed they were intentionally neglected to maintain a core business practice of classifying drivers as independent contractors. Messinger v. Uber Technologies, Inc., 20-cv-08610 (N.D. Cal., filed Dec. 5, 2020).

In documents for its IPO, Uber represented that consumers overwhelmingly prefer it over others for its "quality of service, safety and support." Chief Executive Officer Dara Khosrowshahi told investors considering investing in the company that it "strives to provide the safest and most dependable mobility platform out there, allowing us to provide a highly differentiated experience that builds trust and loyalty."

The complaint additionally cited Chief Legal Officer Tony West, who had said, "We've been strengthening our relationships with regulators by emphasizing safety, transparency, and accountability."

Uber touted the launch of a "safety toolkit," which allows drivers and consumers to access a menu of safety features, ahead of its IPO, according to plaintiffs' attorneys at Robbins Geller Rudman & Dowd LLP, Cotchett Pitre & McCarthy LLP and Bottini & Bottin Inc.

Unknown to investors, Uber's safety policies were defective and geared toward "protecting Uber first" at the expense of passenger safety, Jasnoch claimed.

Uber's investigations unit, for example, was directed to avoid adverse publicity to limit legal exposure over passenger safety, the lawsuit claims. Agents were prohibited from forwarding reports of sexual assault to law enforcement and barred from advising customers who were victims of misconduct to seek legal counsel, the lawsuit claims.

"Uber's safety practices were so defective that they routinely gave Uber drivers who were the subject of sexual assault or harassment reports the benefit of a 'three strikes' policy before they would be terminated,'" wrote Jasnoch.

A safety report issued by the company in 2018 found that there were nearly 6,000 reports of serious sexual assault that year, the lawsuit claimed. It also alleged Uber failed to disclose its revenue growth was quickly declining, especially in its core ridesharing services.

Uber provides incentives to employees to recruit and retain a large fleet of drivers. But to effectively compete against other rideshare providers, it had to maintain or increase money for its driver incentive program at the expense of other operations, the complaint argues.

"Uber was largely trapped in a vicious cycle whereby, in order to grow revenue and market share, it had to maintain or increase its payments of expensive "driver incentives," but could not meaningfully grow revenue or market share without experiencing accelerating loss rates and declining margins," Jasnoch wrote.

The ride-hailing service recorded a company record $5.2 billion loss in the second quarter of 2019 after its IPO.

There's been significant controversy over Uber's IPO, with investors alleging in another securities class action that it misrepresented its chances at profitability. They claimed the company has lost more money faster than any venture in history and might never be profitable.