Uber faces fresh legal attack for refusing to treat drivers as employees

Uber Technologies Inc. faces a new legal attack on its refusal to treat drivers as employees that depicts the company as mistreating not just them but the public at large.

A lawyer who’s been fighting the ride-hailing giant in court for six years wants a judge to now take into account the extra costs saddled on California taxpayers by Uber’s business model.

Drivers being cheated out of wages and not being reimbursed for expenses causes California to lose out on payroll taxes, attorney Shannon Liss-Riordan said in an interview. Uber also avoids paying premiums for workers compensation, social security, unemployment and disability insurance, and public assistance for drivers who can’t support themselves, she said.

The company has warned that attempts to convert its drivers from independent contractors to employees under California’s recently passed AB 5 law, which goes into effect Jan. 1, will be handled as they always have: by its armies of lawyers in courtroom combat. For good measure, Uber is pouring tens of millions of dollars into a 2020 ballot initiative in an attempt to shield its drivers from the law.

Uber says the driver Liss-Riordan is representing, Thomas Colopy, can’t show its labor model causes him “irreparable harm.” His request for the company to be forced to reclassify drivers “does not serve the public interest, but rather only his own,” Uber said in a court filing.

The case was argued Thursday before US District Judge Edward Chen, who handled one of their previous battles that ended in a $20 million settlement without any change to the company’s business model.

Chen said it’d be “highly unusual” to issue an immediate order, or injunction, requiring Uber to reclassify its drivers before first deciding whether to let the lawsuit proceed as a class action. The judge suggested the case might stand a better chance in state court.

“I’ll take a second look at it but I’m quite skeptical,” Chen said. But he told Uber he’s not throwing out the case at this point.

Liss-Riordan, based in Boston, has waged a long-running legal campaign against Uber and the gig economy broadly, arguing its model is built on cheap labor and legal end-runs around decades of hard-won protections for workers.

AB 5 says workers can generally only be considered contractors if they perform duties outside the usual course of a company’s business. Legal experts say the law weakens Uber’s argument that its drivers are independent contractors, and even the company acknowledges the law creates a higher hurdle.

Liss-Riordan said the law gives her new complaint a legislative ”stamp of approval.”

“It emphasizes the fact that the state of California has recognized misclassification is a public harm,” she said. “The whole state of California understands that AB 5 was passed in order to stop Uber and the rest of the gig economy from misclassifying its workers.”

Uber argues that while Colopy’s “purported injury” could be fixed with monetary damages, the company would be required by the so-called public injunction he seeks “to change its entire business model.”

The company also stands by its argument that it’s not a ride-share company and that drivers are peripheral to its central mission.

“Uber is a technology company, and therefore operates no vehicles and provides no tools or equipment.” Drivers and riders use its application, Uber argues, “to create a business connection.”

A Seattle University law professor who follows these fights closely said that under AB 5, state or local officials may be in a better position than Liss-Riordan to pursue a public injunction.

“There is a public policy question facing all of us about what we demand from employers -- whether we agree that any working conditions that an employer can get an employee to agree to are acceptable, or if we demand some minimum standards,” Charlotte Garden said.

.Uber loses $1bn in first quarter due to high spending on food, drivers

Uber Technologies Inc reported a $1 billion loss on Thursday as the ride-hailing service spends heavily to build up its food delivery and freight businesses, sending revenues up 20% in its first quarterly report as a public company.

Revenue of $3.1 billion matched the high end of the range Uber forecast for the quarter and the loss of $1.0 billion compared with the company's forecast of $1.0 billion to $1.11 billion.

Shares rose 2.6% following a conference call with executives in which Chief Executive Dara Khosrowshahi cited business improvements, such as fewer consumer promotions in the second quarter, but called 2019 an "investment year."

With its share price trading more than 10% below its IPO price of $45, Khosrowshahi will have to convince investors Uber can turn a profit, given its reliance on rider incentives and competition in all parts of its business, from its core business of ride hailing to food delivery to freight.

"Our story is simple. We're the global player," Khosrowshahi told analysts on his first earnings call after the company's IPO earlier this month. "Our job is to grow fast at scale and more efficiently for a long, long time."

The results indicate the newly public company was able to hit its own financial targets, likely to offer some assurance to investors.

Costs went up 35% in the quarter, as the company spent heavily in the run-up to its IPO earlier this month. Gross bookings, a measure of total value of rides before driver costs and other expenses, rose 34% from a year ago to $14.6 billion. Bookings were up 3.4% from the previous quarter, showing the difficulty of recruiting new riders in saturated markets.

But Wedbush analyst Ygal Arounian said he was encouraged by improvements in take rates, and accelerating revenue growth. Uber's take rate is the revenue pocketed by the company after subtracting driver or restaurant pay and incentives.

"We're still a while away from profitability, but Uber is expecting strong signs of improvement across many of its key metrics and that is an important sign for investors."

Uber was the biggest of a group of Silicon Valley startups that have gone public this year against the backdrop of a global stock market sell-off sparked by renewed trade tensions between the United States and China. Uber also faces increased regulation in several countries and fights with its drivers over wages.

In the mature U.S. market, where Uber's main rival is Lyft Inc, Khosrowshahi said two levers for growth were the expansion of rides into suburbs and a generational wave, in which millennials show little interest in car ownership.

Executives said signals from Lyft during its recent earnings call that its rival was focused less on price and more on brand and product was a positive. Khosrowshahi called it a "healthier mode of competing than just throwing money at a challenge."

Overall, incentives paid to drivers more than doubled from a year earlier, outpacing revenue growth, as the company invested in its growing food delivery service, Uber Eats. In that unit, driver incentives tripled to $291 million while revenue rose 89 percent.

Uber was "very early in the stages" of exploiting how ride-hailing can help its Eats business, where take rates would improve over 2019, he said.

The company had begun to "upsell" riders to Eats deals, with encouraging early signs, Khosrowshahi said.

Uber said its monthly active users rose to 93 million globally, from 91 million at the end of the fourth quarter.

A net loss was $1.01 billion, or $2.26 per share, in the first quarter ended March 31 compared with net income of $3.75 billion, or $1.84 per share, a year earlier, when results were helped by its sale of operations to Grab and Yandex.

In its fourth quarter, Uber's net loss was $887 million and revenue was $2.97 billion.

Uber previously said it expected first-quarter revenue in the range of $3.04 billion to $3.1 billion while seven analysts polled by Refinitiv IBES on average expected revenue of $3.04 billion.

In its market debut, Lyft counters Uber with 'nice guy' image

Lyft Inc has been challenging larger ride-hailing rival Uber Technologies Inc for years by cultivating an image of caring more for its drivers, riders and the environment. As the company debuts in the stock market on Friday, it hopes to convince investors the "nice guy" image will pay off.

"In the early days, people misunderstood, 'Oh you guys are the nice guys. You guys are going to get crushed by a more competitive player," Lyft President and co-founder John Zimmer told Reuters.

"We said, 'No, we're very competitive but treating our employees well, treating our drivers well, treating the local communities that we work with respect, which is also very good for business."

Lyft exceeded market expectations with its initial public offering (IPO) on Thursday, raising $2.34 billion and fetching a valuation of $24 billion.

That is still a fraction of the $120 billion valuation that investment bankers have told Uber it could wind up with in its IPO in April, thanks to its international presence and expansion into sectors such as food delivery and freight hauling.

Despite its bigger size, Uber has evolved in lock-step with Lyft, adding new types of rides like car-pooling, changing fares investing in autonomous vehicle development and adding scooters and bikes.

As a result, Lyft and Uber look a lot alike. Both companies have been losing money, subsidizing rides to boost market share. But Lyft has been making inroads against Uber in the United States, boosting market share to 39 percent as of December from 35 percent in early 2018.

Some of Lyft's gains are due to Uber's woes. The latter is still recovering from a series of scandals in 2017, including allegations of sexual harassment made by female employees, the forced resignation of its chief executive officer and the departure of other senior executives, and its use of illicit software to deceive regulators.

A #DeleteUber campaign surged on social media. The negative publicity helped Lyft attract new drivers and riders without spending much on marketing.

Lyft, which operates in the United States and a few Canadian cities, also moved to boost its market share, adding more than 100 new cities since 2017. It targeted socially conscious millennials who are concerned about harming the environment by owning a car.

"We have barely scratched the surface of helping shift the world from a car ownership model to a transportation-as-a-service model," Lyft's CEO Logan Green, who is also a co-founder, told Reuters.

Lyft's branding as a warmer, more caring alternative to Uber dates back to its launch in 2012. It borrowed marketing strategies from Southwest Airlines Co and Starbucks Corp, hoping to portray itself as friendly and customer-centric, and likened itself to the championship Golden State Warriors pro basketball team, according to Lyft executives.

'PRICE IS MAIN FACTOR'

Anna-Marie Wascher, CEO and founding partner at Flat World Partners, an institutional advisory and asset management firm and early Lyft investor, said market share growth came as "consumers were being more discerning in their choices," and recognizing the gulf in company culture and values between the two firms.

While some Lyft riders have turned into loyalists as a result of its branding efforts and Uber's problems, many say they still pick the app with the lowest price.

"(My choice) is based on price and estimated time of arrival. But I would say price is the main factor," said John Nickele, who owns a bicycle in San Francisco and spends about $30 a week on Lyft and Uber.

Both Lyft and Uber have been criticized for causing congestion in cities and creating hazards to bicyclists and pedestrians. A study by the San Francisco County Transportation Authority found that about half of new congestion in San Francisco from 2010 to 2016 was from ride-hailing.

Lyft said this week it will provide at least $50 million per year to cities to support transportation infrastructure, fight climate change and provide free rides to those in need, such as victims of natural disasters.

The first project will be in Los Angeles, where it will offer rides to individuals who provide services to the homeless.

Lyft's and Uber's relations with their drivers are not without strain. Lyft drivers this week held protests in San Francisco and Los Angeles over what they call wages that are too low to survive on. The company also faces a slew of arbitration claims and lawsuits from drivers who claim they are misclassified as independent contractors and owed back wages and reimbursement for expenses.

Zimmer told Reuters he believes the company's ongoing work supporting drivers will help it stand apart from Uber. He said he still attends meetings with drivers to hear their grievances and exchanges texts with them.