The driver classification lawsuit — O’Connor v. Uber — is not going very well. Not only did Uber lose its appeal to the Ninth Circuit, Judge Edward Chen recently rejected the validity of Uber’s arbitration clause. For the non-lawyers out there, this is a big deal. The arbitration clause was designed to prevent Uber drivers from joining class action lawsuits. Thus, up to 160,000 California Uber drivers will now be able to ignore the arbitration clause in their contracts.
It gets better. The lawyer for the plaintiffs, Shannon Liss-Riordan, recently filed a motion requesting a bench trial. If granted, a bench trial would have a number of important implications. First, a judge would be responsible for determining whether Uber has in fact misclassified its drivers as contractors when they should have been treated as employees. This is what lawyers call the “liability” phase of the trial. Second, a judge would be responsible for determining how much Uber should pay to the improperly classified drivers. In lawyer speak, this is the “damages” phase of the trial.
Why does Liss-Riordan want a bench trial? What benefit does that provide Uber’s allegedly aggrieved drivers? The answer is nestled in a footnote, and once you reflect on it, you’ll realize that Liss-Riordan groks something that Uber’s defense counsel may not:
Plaintiffs have a concern that a jury may be more susceptible to outside, irrelevant considerations that have no bearing on the Borello analysis. This concern is particularly acute here given Uber’s widespread media campaign, and arguments to the Court, that drivers should not be declared employees because they “like” being independent contractors, as well as the threat that if drivers are declared employees Uber may take away their flexibility.
From this footnote, it’s clear that Liss-Riordan understands the legal optics of this case better than Uber does. She realizes that Uber’s sheer ubiquity in the US market (especially California) is going to create a pro-Uber bias during jury selection that may be virtually impossible to overcome. Given how notoriously difficult it is to persuade jurors to expunge deeply held biases, it’s wise to confront this issue head-on just as Liss-Riordan has done here. A bench trial, after all, would help ensure that the key legal issues in this case — which concern the degree of control Uber has over its drivers — are adjudicated objectively and fairly.
There’s something deeper going on here, something I am not even sure the wider tech world understands. When Uber engages in saber rattling by telling the press that drivers would lose “flexibility” if they were classified as employees, the company is either (i) lying or (ii) confused about how it will have to manage its own workforce in a future where robotic cars take over.
Allow me to explain. Over the next few years, in order to optimize its revenue and grow efficiently Uber will have to do two things:
- Manage its workforce by reducing the number of human drivers it employs; and
- Increase Uber’s value by only employing drivers who consistently provide excellent service to its customers.
The first step is necessary because self-driving vehicles (SDVs) are on the horizon. As SDVs become road-ready, all ride-sharing companies are going to swiftly adopt them and phase out human-driven vehicles. The days when someone can be quickly on-boarded as an Uber driver are numbered. In the near future, Uber will be sending “Sorry, your application cannot be accepted” emails to aspiring drivers.
The second step is a function of competition, since ride-sharing companies in the near future will have to compete largely on service quality. Of course, price will be driven down by a number of factors, including the introduction of SDVs into ride-sharing fleets. As prices are driven down, Uber drivers will naturally drop off the platform. In fact, this is largely how Uber passively manages its supply of drivers in markets the company has already conquered: Once Uber can meet the demand curve of a particular city, the company commences fare reductions. The natural effect of this is driver attrition.
During this transition phase — i.e., the period in which human drivers are still providing some percentage of a ride-sharing company’s total capacity — those drivers will be held to constantly rising service standards. What those standards look like is anyone’s guess. They could take the form of new driver training programs, additional rider-feedback mechanisms, or requirements to provide passengers with prescribed refreshments. Whatever they turn out to be, these novel quality standards will work in tandem with fare reductions to reduce the flexibility Uber currently offers its drivers. Drive however-you-like and whenever-you-like are going away.
Uber isn’t going to nix flexibility because a court decides drivers are employees. That will never happen. Instead, Uber is going to be forced to reduce driver “flexibility” to adapt to SDVs and fierce competitive pressures. So when you hear that a nettlesome plaintiff’s lawyer is going to screw things up for countless Uber drivers who like being 1099s, just remember this: Uber is soon going to eliminate much of the flexibility these drivers enjoy regardless of how O’Connor v. Uber turns out.
John Eden is principal advisor at iPiphany Group, providing legal strategy and policy advice to technology companies. He practiced law at Wilson Sonsini Goodrich & Rosati in the United States and at King & Wood Mallesons in Australia. His experience in product and strategy spans a wide array of startups, including Zynga and Securify. Originally from Chicago, he now lives in the San Francisco Bay Area.