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Uber, Lyft Face Lawsuits That Could Alter Sharing Economy

Some contract Uber and Lyft drivers want employee status and benefits, which could have a big impact on the sharing economy. CNBC's Kate Rogers reports.
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Hot start-ups Uber and Lyft have contributed substantially to the growth of the sharing economy that connects freelancers with available work projects. Now some drivers of those companies argue they've been misclassified as independent contractors and want full employee status.

Uber and Lyft face two separate lawsuits in San Francisco federal court. The suits, filed in 2013, are seeking class-action status and now making their way through the courts.

A ruling on full employee status for Uber and Lyft drivers could have wide-ranging implications for the collaborative consumption movement. The new economic model has been able to maximize start-ups' growth through a largely freelance workforce with few traditional, full-time benefits and lower costs for new businesses.

Beyond full employee status, the plaintiffs are seeking reimbursement for expenses including gasoline and car maintenance costs, which they would normally receive if they had employee standing in California. Drivers for both companies currently are classified as freelancers, and drivers cover such costs themselves.

Plaintiff attorney Shannon Liss-Riordan, partner at Boston-based Lichten & Liss-Riordan, said both companies are profiting "massively" from what she describes as a worker misclassification.

"Companies like to convince their workers that it's good for them to be independent contractors because they have all of this flexibility," said Liss-Riordan, who is representing both Uber and Lyft drivers. "That's a lie because employees can also have flexibility, work part-time hours and pick their schedules. You can get all of those things and still get employee benefits."

But didn't the Uber and Lyft drivers know they were signing up for freelance jobs—without benefits—from the get go?

A matter of fairness

Liss-Riordan argues the complaints basically come down to fairness for drivers. "There are basic labor protections in place to ensure companies do not take advantage of their workers," she said. "Why should Uber, valued at $40 billion, not have to pay for things that we as a society have deemed important?"

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Pinpointing the lawsuits' potential total cost, for Uber and Lyft, is difficult. The plaintiffs have not disclosed what they're seeking in damages. Neither start-up has revealed how many drivers it has on its payrolls.

Lyft told CNBC by email it employs "thousands" of drivers in California, and declined to comment further on the lawsuits.

Uber also declined to comment on the suits.

Labor experts say it's challenging to put a dollar amount on how much full employee status would cost Uber and Lyft.

The Society for Human Resource Management says the average premium for employee-only health-care coverage in 2014 was $882 per employee per month. Using that metric, health-care costs alone could run into the hundreds of thousands per month for the companies if they offered full-time benefits. Other potential costs could include fuel and related transportation costs for car-related start-ups.

Dan, an Uber driver in Los Angeles—who agreed to appear on camera on the condition his full name not be used—said he's spending an average of $80 a week on gasoline, $30 a month on car washes and $300 a year on oil changes. His total, potential reimbursement costs could be near $5,000 a year, he estimated.

"I think the sharing economy can and will survive; they just have to play by the same rules as everyone else."

Aside from covering those costs himself, the driver claims Uber will not tell drivers where they're heading beforehand, and some drivers needing work feel pressured to accept faraway trips without full disclosure.

Uber did not respond to emails requesting comment, including details on average driver costs, and whether drivers must accept jobs before full details and mileage are disclosed.

On its website, Uber explained its strategy this way: "By seamlessly connecting riders to drivers through our apps, we make cities more accessible, opening up more possibilities for riders and more business for drivers."

Some like it flexible

Of course not all drivers want full employee status.

Brooklyn, New York-based Lyft driver Robert Henderson recently made the job switch to Lyft from Uber. Henderson worked in nonprofit foster care for 25 years and says the freedom and flexibility of being an independent contractor lured him to the sharing economy.

"[Becoming an employee] would feel like this is an obligation, and I don't want that obligation feeling. I like the fact that whenever I am ready to work, I could work," Henderson said. "The flexibility is amazing; it's something you just cannot buy."

Henderson has health insurance through his wife, so pushing for benefits isn't a priority. However, reimbursement for costs including gasoline and car maintenance would be nice, he said.

"But at the same time, you can make enough to cover your gas and expenses and still come home with a very decent paycheck," Henderson said.

It is unclear when the judges will give their next rulings on the cases, which are still in early stages, attorney Liss-Riordan said. But given the high valuations for Uber and Lyft—in the billions—paying for benefits shouldn't be an issue, she said.

"I think the sharing economy can and will survive; they just have to play by the same rules as everyone else," she said.