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On the road to a gig economy, litigators take the wheel

By John Roemer
Special to the Bar Journal

Just four years from now, up to 40 percent of American workers will be independent contractors navigating the so-called gig economy, an Intuit Inc. study predicts – and it’s going to take a lot of lawyers to realign the rules for a profoundly altered social landscape.

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Already at issue in California courtrooms and at regulatory agencies are major changes in the state’s $28 billion transportation sector, as ride-sharing platforms like Uber and Lyft plus the self-driving vehicle market disrupt today’s car culture.

Uber has only been in business since 2009, but a collision of the complex issues upending the industry came to light on New Year’s Eve 2013. On that day an Uber driver was using the Uber app to look for fares when his vehicle struck and killed a 6-year-old girl in a San Francisco crosswalk as she headed home with her mother and brother. The family sued.

Uber’s defense to the family’s wrongful death and negligence suit was that the driver wasn’t carrying a passenger at the time of the accident, so he wasn’t working for the company, and Uber was not responsible. But the underwriter of the driver’s personal injury insurance policy contended he actually was working for Uber at the time, and his $15,000 coverage allegedly did not apply.

It’s just one case, but the incident highlights some of the issues – including liability, insurance coverage and worker classification – and the complexities that plague this emerging industry.

San Francisco attorney Christopher B. Dolan of Dolan law Firm PC, a past president of Consumer Attorneys of California who represents victim Sofia Liu’s family, opened three lines of attack in the lawsuit. Along with wrongful death and negligence claims, Dolan introduced a novel product liability cause of action against the Uber app that driver Syed Muzaffar was using at the time of the accident.

“It’s a defective product, a defective app,” Dolan said. “California law prohibits distracted driving, yet Uber drivers have to look at the app to get text messages. Uber really doesn’t want to get that into court.”

Dolan and his clients also worked with Assemblywoman Susan Bonilla (D-Concord) to pass AB 2293, legislation that requires such “transportation network companies” to carry liability insurance. Gov. Jerry Brown signed the measure into law in 2014; it took effect July 1, 2015. After the bill passed, Uber settled with Sofia Liu’s family for an undisclosed amount. Dolan would only say it was “to the plaintiffs’ satisfaction.”

Dolan sees California Public Utilities Commission’s rulemaking process becoming further complicated as it strives to frame regulations for new forms of transit in a state where Google Inc. and Tesla Motors Inc. are forging driverless technology. He foresees a wave of driverless car litigation as the next major source of transportation lawsuits.

“There have been no personal injuries in California yet,” Dolan said, “but in Philadelphia, Uber has petitioned to put full driverless vehicles in service. This is coming on fast.” Dolan noted that Uber, with a market value of more than $41 billion, pays about 75 percent of its gross profit per ride to drivers, a strong impetus for the company to move toward driverless vehicles.

In December, the commission announced preliminary regulations for autonomous cars that hold motorists – and presumably any transportation networks that dispense with drivers – responsible for obeying traffic laws, whether or not humans are behind the wheel.

“I represent the interests of those hurt by these new transportation network carriers,” Dolan said. “The future is now.”

Meanwhile, Uber and Lyft drivers are plaintiffs in two massive class actions that could become milestones that define the future of the gig economy. The lawsuits stem from a long-running legal debate over whether service workers should be classified as employees or as independent contractors. Both cases turned unusually contentious when some of the driver plaintiffs rejected proposed settlements that would have left them defined as contractors.

One objector in the suit against Uber is the case’s original named plaintiff, driver Douglas O’Connor. A class of more than 240,000 California and Massachusetts Uber drivers have attacked the company’s business model and tried to redefine how rideshare companies operate. The stakes were high, so Uber drivers retained prominent class action employment veteran Shannon Liss-Riordan of Boston-based Lichten & Liss-Riordan PC.

Uber brought on prominent class action defense lawyer Theodore J. Boutrous Jr. of Gibson, Dunn & Crutcher LLP. Boutrous won a unanimous U.S. Supreme Court reversal of class certification in the largest employment class action in history against Walmart Stores Inc.

In April, Boutrous and Liss-Riordan announced they had hammered out a settlement that would not change the drivers’ status, but would afford them other benefits such as a drivers’ association and some job security plus $100 million.

But one of the case’s original named plaintiffs, driver Douglas O’Connor, objected and hired well-known litigators Brian S. Kabateck of Kabateck Brown Kellner LLP and Mark J. Geragos of Geragos & Geragos APC to try to monkey-wrench the settlement.

In May, Kabateck and Geragos filed a strongly worded objection with U.S. District Judge Edward M. Chen of San Francisco. The proposed “collusive and disastrous” settlement, they complained, is nothing less than a $1 billion wage theft from the drivers because it does nothing about classification, which Kabateck called “an important social issue that is at the center of the gig economy.” The objection took aim squarely at the drivers’ lead counsel.

“It is apparent that this proposed settlement is designed solely to enrich Ms. Liss-Riordan and protect Uber at the expense of its drivers,” according to the objection. It “has broad implications and may single-handedly ruin the economy for California workers.”

The objection noted that another Northern District judge, Vince Chhabria, rejected a similar deal in a different class action against Lyft by drivers – also represented by Liss-Riordan – because it was inadequate. Referring to state authorities’ view, Kabateck and Geragos wrote, “It is shocking for an out-of-state attorney to so blatantly sell out the California class of drivers, consciously ignoring the California Labor Commission’s ruling that an Uber driver is an employee and not an independent contractor.”

Liss-Riordan and Boutrous denied collusion in separate court filings. Liss-Riordan, without identifying him by name, termed Geragos a “celebrity lawyer” not well versed in labor and employment law who did not understand that an arbitration clause in Uber’s drivers’ contract could wipe out many of their class action claims.

“Labor right advocates – who understand the issues we were facing – have congratulated me on what I achieved in this case,” Liss-Riordan said in a published interview. In her response to the objection, she highlighted the case’s significance. “Simply because this case deals with an emerging sector of the economy, and involves far more class members than the average misclassification class action, does not mean the settlement is subject to a different standard of approval,” she wrote.

Even so, in June Liss-Riordan sought to quell the class members’ rebellion by slashing her fee request from $25 million to $10 million. That gambit satisfied no one. A lawyer not involved in the case called it desperate, especially when Liss-Riordan conceded she had not kept detailed billing records.

“I feel strongly that lawyers have to stand up to corporations like Uber,” Kabateck said in an email summarizing the dispute. “If not us, who? The so-called ‘gig’ or ‘shared’ economy is one of the biggest threats to individual workers in California today. Most don’t understand the significance of having a growing percentage of the workforce out there without the protection of an employer-employee relationship. As the Uber model seeps into other businesses and professions, soon most people won’t be ‘employed.’ They will just float from job to job as business owners get richer and richer off their hard work.”

John Roemer is a San Francisco Bay Area freelance writer who has covered the California legal community for more than 20 years.