A lawsuit filed by three Philadelphia drivers could pose an existential threat to Uber, the tech giant stated in documents prepared in advance of its becoming a publicly traded company.
The suit from drivers for Uber’s black car service in 2016 challenges one of the foundational principles of the ride-share business model — that drivers are independent contractors and not employees.
“Judges haven’t decided the status of our employment, and if we end up expanding our class of UberBlack drivers, that will change the whole Uber model, and it will flip the IPO upside down,” Ali Razak, one of the Philadelphia drivers suing Uber, said Thursday night.
Uber Technologies Inc. named the suit by Philadelphia UberBlack drivers Razak, Kenan Sabani, and Khaldoun Cherdoud as one of the pending legal actions that pose a risk to the company in documents filed Thursday morning for a registration statement with the U.S. Securities and Exchange Commission. The documents describe Uber’s financial position, strategy for growth, and risks to the company as a prelude to an initial public offering. Classifying drivers as employees, the company stated, would “require us to fundamentally change our business model, and consequently have an adverse effect on our business and financial condition.”
The suit, filed in U.S. District Court for the Eastern District of Pennsylvania, has been unsuccessful so far. In April 2018, a judge issued a summary judgment in favor of Uber, saying Razak had not proved that Uber drivers are employees. The decision is under appeal.
The question of ride-share drivers’ status is deeply contested. Drivers nationwide have sought to be classified as employees, arguing in suits like Razak’s that Uber exerts so much control over its drivers that it is an employer. The Philadelphia suit seeks compensation for overtime and the minimum wage. Drivers in Philadelphia have seethed over low wages and what they described as sudden changes in the terms of their work that they have no power to challenge or negotiate.
Since filing the suit, Razak and other UberBlack drivers are facing new frustrations, Razak has said. Uber recently introduced new ratings standards for drivers and age restrictions for UberBlack vehicles that will make some drivers’ cars unusable for the service in 2020.
Uber’s 3.9 million drivers set their own hours, decide where they want to work, use their own vehicles, and aren’t required to work for Uber exclusively, the company stated in its SEC filing, which called the arrangement key to its financial health. If legislation or a court decision classified drivers as employees, the company stated, Uber would be responsible for paying the minimum wage and overtime, and such expenses as employee benefits, Social Security deductions, and additional taxes.
Uber’s public offering is highly anticipated, but its ability to make a profit is uncertain. The company stated in its SEC filing that it predicts more losses to come and may never be profitable. Uber earned $11.3 billion in revenue last year, according to the documents, but reported a $1.8 billion net loss. Uber’s chief competitor, Lyft, went public at the end of March at $72 a share. Its value was down to $61 on Thursday.