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Philadelphia drivers' lawsuit a risk to Uber as tech giant prepares to go public

Jason Laughlin, The Philadelphia Inquirer on

Published in Business News

PHILADELPHIA -- A lawsuit filed by three Philadelphia drivers could pose an existential threat to Uber, the tech giant reported in documents prepared in advance of it 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, 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," said 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 legal actions now pending that posed 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, its 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 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 Uber drivers are employees, but 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 it is an employer. The Philadelphia suit seeks compensation for overtime and 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 make 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, and the arrangement is key to its financial health. If legislation or a court decision classified drivers as employees, the company stated, Uber would be responsible for minimum wage and overtime, and such expenses as employee benefits, Social Security, and additional taxes.

Uber's public offering is highly anticipated, but its ability to make a profit is uncertain. The company itself stated in its SEC filing that it predicted more losses to come, and it may never be profitable. Uber earned $11.3 million in revenue last year, according to the SEC documents, but also reported a $1.8 billion net loss last year. Uber's chief competitor, Lyft, went public at the end of March at $72 a share. Its value was down to $61 Thursday.

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