Two separate class-action lawsuits against ride-hailing companies Uber and Lyft will go to trial before juries after the companies failed to convince Federal judges on Wednesday that drivers who work for them should be considered contractors instead of employees.
U.S. District Judges Edward Chen and Vince Chhabria said in two rulings in San Francisco federal court that juries will have to determine the status of each companies' drivers.
Both companies currently face separate class-action lawsuits from drivers who contend that they're employees entitled to a minimum wage, reimbursement for expenses, overtime and other benefits. Currently, the companies classify their drivers as contractors, and require them to pay expenses from their own pockets.
If a jury finds that drivers for transport network companies like Uber and Lyft are in fact employees, "it's going to mean a lot of things," according to Shannon Liss-Riordan, a lawyer representing the plaintiffs in the class-action lawsuit against Uber.
Under California law, both companies would have to reimburse employees for expenses like gas, tolls and insurance. They would also have to pay unemployment insurance, workers' compensation, Social Security and other benefits.
Aside from increasing the cost of doing business, the ruling could affect the valuations of both companies and similar start-ups, which rely heavily on contracted individuals to provide services that are core to their business.
A Lyft spokeswoman said the company could not comment on ongoing litigation while Uber did not immediately respond to requests for comment.
Until now, both Lyft and Uber have argued that classifying their drivers as contractors is mutually beneficial because it affords both sides flexibility and lets them terminate the agreements at any time. Drivers also sign up with full knowledge that they are independent contractors.
Liss-Riordan argues this is a "misnomer" because "employees can be given flexibility too." And although drivers knowingly sign up as independent contractors, the class-action lawsuits assert that the drivers are already treated as employees, as shown by the power both Uber and Lyft have over drivers, including the ability to fire them on the spot if they are deemed unworthy.
Based on the arguments presented to him in the Lyft case, Judge Chhabria said "a reasonable jury could conclude that the plaintiff Lyft drivers were employees. But because a reasonable jury could also conclude that they were independent contractors, there must be a trial."
Judge Chen made a similar ruling in the class-action lawsuit against Uber.
Chhabria acknowledged it will be difficult to determine how the drivers should be classified because existing labor laws were passed well before the rise of the sharing economy, and thus may not adequately address new industries.
"The jury in this case will be handed a square peg and asked to choose between two round holes," he said.
A trial date has not yet been set.