How A Suit Against Uber Could Redefine The Sharing Economy

By Laura Sydell

Published September 2, 2015 at 5:20 AM EDT

A federal judge in California has allowed some Uber drivers to proceed with a class-action suit against the company.

Updated at 12:08 p.m. ET: Uber Responds

Uber has been fighting challenges to its business model. But a federal judge in California has allowed some drivers to proceed with a class-action lawsuit against the ride-hailing service. The case could affect other big companies in the sharing economy.

Uber challenged the traditional taxi business with an app that brought together people who need a ride with people who have cars. The drivers get paid a rate set by Uber.

But Shannon Liss-Riordan, an attorney for the drivers, says Uber passes on a lot of costs.

"They have to pay for their own cars. They have to pay for their gas. They have to pay for the wear and tear on their vehicles. And basically Uber is able to shift all those expenses to its drivers and not have to pay it themselves," she says.

Liss-Riordan says the drivers are arguing that they should be classified as employees — not contractors — and she claims that labor law is on their side, especially in California where the company is headquartered.

"In California, those laws are particularly strict and say that employers have to reimburse their employees for expenses that are required to do the job," she says.

One of the first steps in the case against Uber was getting the federal judge to certify the drivers as a class. The company fought that classification but lost.

Uber says the decision only applies to a limited number of drivers and the company is likely to appeal it.

The company brought in testimony of drivers who were happy being independent contractors and didn't want to be part of the class. However, the judge determined that was a small group compared with the tens of thousands of drivers that work for Uber — a company that some value at $50 billion.

Any ruling in this case could affect other companies in the sharing economy, like Airbnb, TaskRabbit and Lyft, an Uber competitor, says Stanford law professor Bill Gould.

The sharing sector is "where this question of misclassification of employees into independent contractor status is arising with increasing frequency," he says.

The case is still many months from trial. Liss-Riordan says the case is likely to go before a jury sometime next year.