Ride-Sharing Platforms and Tort Liability Exposure: Know and Mean What You Say

While the first legal issue that comes to mind for many when considering the new ride-sharing platforms is the employee v. independent contractor question, exposure to tort liability should also be near the top of the list for platforms, service providers, insurers and consumers.

Several months ago in Search v. Uber Technologies, Inc., No. 15-257, (D.D.C. 2015), Judge James E. Boasberg mostly denied Uber’s motion to dismiss a lawsuit filed by a consumer who allegedly was attacked by a knife-wielding Uber driver.  The action accused Uber of negligent hiring, training and supervision; negligence under respondeat superior and apparent agency theories; and violation of the District of Columbia’s Consumer Protection Procedures Act (“CPPA”).

At the motion to dismiss stage, a court is generally required to accept the allegations contained in the complaint as true, and limit its review to such allegations and attached exhibits, if any.  This explains why for the most part, Uber’s motion, which presented the Court with materials outside of the pleadings, such as an affidavit and Uber’s Terms and Conditions, was unsuccessful.

Plaintiff’s negligent hiring claim does not require the existence of an employer/employee relationship.  “[A]n entity may also be liable for the negligent-hiring of an independent contractor.”  But regardless of how Uber’s driver is properly classified, plaintiff had to allege specific facts from which an inference could be drawn that Uber (i) did not conduct a reasonable background investigation, and (ii) that such an investigation would have uncovered a reason not to hire the alleged tortfeasor.  Because Mr. Search did not make such allegations, his negligent hiring claim (and, on the same grounds, his negligent training and supervision claims) was dismissed.

Plaintiff’s respondeat superior claim does require an employer-employee relationship, as well as a tortious act committed by the employee within the scope of his employment.  As the Court explained, the determining factor when assessing the existence of an employer-employee relationship is usually the right to control an employee.  Upon consideration of plaintiff’s allegations, the Court concluded that “a reasonable factfinder could conclude that Uber exercised control over [its driver here] in a manner evincing an employer-employee relationship.”  In other words, plaintiff’s claim sufficiently alleged a respondeat superior theory of negligence against Uber, and the Court could not determine as a matter of law that the driver was an independent contractor.  As for whether the driver was acting within the scope of his alleged employment, plaintiff also alleged facts suggesting the dispute giving rise to the driver’s alleged attack grew out of an encounter related to Uber’s business. Thus the Court could not conclude, as a matter of law, that the driver’s alleged tortious conduct was an act outside employment, and Uber’s motion to dismiss the claim was denied.

Plaintiff’s negligence claim based upon apparent agency seeks to impute the driver’s alleged liability onto Uber, even if the relationship is one of independent contractor.  This is permitted in cases where the principal places the agent in a position to mislead third persons into believing that the agent is clothed with authority s/he does not in fact possess.  Here plaintiff relies upon Uber representing to customers that it is “your private driver” and “that it subjects its drivers to rigorous screening procedures . . . and continues to monitor the drivers after they are hired.”  While Uber’s Terms and Conditions dictate that its drivers are not its agents, as explained above such materials cannot be considered in ruling upon a motion to dismiss.  Uber’s alleged representations were enough for the Court to deny its motion to dismiss plaintiff’s apparent agency claim.

Plaintiff’s claim under D.C.’s CPPA statute is  that Uber repeatedly represented to the public that its drivers were rigorously screened to ensure they wouldn’t pose a danger to passengers, but that it failed to actually conduct such screenings.  Unlike the negligent hiring claim, the asserted CPPA violation does not require plaintiff to allege that, had Uber performed an investigation, it would have discovered information alerting it to the driver’s dangerous personality.  Plaintiff’s allegations were sufficient, and Uber’s reliance upon its Terms and Conditions were again misplaced.  Uber motion to dismiss the CPPA claim was denied.

There’s admittedly nothing very sexy happening here at the motion to dismiss stage.  Plaintiff may get an opportunity to re-plead his negligent hiring/training/supervision claims, and Uber will eventually get a chance to defend itself on the merits via testimony, contractual terms, or otherwise, possibly by means of a motion for summary judgment.

This decision does suggest though that it’s unlikely certain tort claims against ride-sharing platforms will be resolved at the pleading phase.  While Uber’s Terms and Conditions couldn’t shield it at this early point in the litigation, some of its very own marketing materials functioned as a sword, helping several of plaintiff’s claims here survive Uber’s motion to dismiss.  Ride-sharing platforms, and other Sharing Economy intermediaries, should be mindful to what extent their public statements increase their exposure to tort liability, and, in any event, ensure such statements are truthful as to business operations and dealings.

UPDATE:  As of December 1, 2015, a Settlement Conference is scheduled for February 4, 2016 before Magistrate Judge Alan Kay.

Posted in Litigation, Ride Sharing, Terms of Use, Torts

Early Court Decision Mentioning “Sharing Economy” Offers Lessons for Platforms, Hints from Judiciary

Perhaps the biggest legal issue facing what I’ll refer to here as ride-sharing companies is whether their drivers should be classified and treated as employees or independent contractors. When an employer/employee relationship exists, the employer may be responsible for paying a minimum wage and overtime, providing benefits, making reimbursements, passing along tips, and complying with various state and federal labor laws. In short, it can be much more expensive for a business to employ someone than to retain him or her as an independent contractor.

In one of the first labor lawsuits filed against Uber, District Judge Edward M. Chen of the United States District Court for the Northern District of California ruled in O’Connor v. Uber Technologies, Inc. (No. C-13-3826) (Mar. 11, 2015) that the company was not entitled to summary judgment on the question of whether some of its UberBlack and uberX drivers are independent contractors. Instead, after noting Uber’s revenues are dependent upon its drivers transporting passengers, the Court concluded that the plaintiffs are Uber’s presumptive employees because they perform services for the benefit of Uber. Remaining mixed questions of law and fact that would definitively resolve whether plaintiffs are Uber’s employees or independent contractors were left for a jury to consider.

There is plenty of case law in California addressing the common law factors to be weighed in considering the employee/independent contractor question, with the putative employer’s right to control work details at the top of the list (e.g., the right to terminate an individual at will).  As the opinion explained, Uber asserts significant control over how its drivers do their jobs, a factor that alone probably made summary judgment in its favor on this issue impossible.  But consider these three additional takeaways:

First, it is evident that some of Uber’s own materials figured into the Court’s adverse ruling against it. The decision cites to Uber’s driver handbook, marketing materials, tagline (i.e. “Everyone’s Private Driver”), driver contract, emails to drivers, scripts, internal documents and emails, utilization of rider ratings and feedback, training videos, and a CEO blog post to demonstrate either a contradiction with Uber’s summary judgment arguments or to show that a genuine issue of material of fact exists rendering summary judgment in Uber’s favor inappropriate.  What may be practical if not beneficial from a business and/or marketing standpoint can be lethal from a legal perspective.

Second, while not a major point, it’s worth highlighting what might be obvious to everyone after the fact – an agreement between two parties regarding the nature of their relationship (i.e. contractual provision specifying parties have independent contractor, not employer/employee, relationship) does not make it so. In other words, Uber and its drivers can agree to characterize their relationship however they like, but a court is likely to examine the realities of the relationship, and not just a label, before coming to any conclusions.

Lastly, I note Judge Chen concluded his opinion with the following statement, seemingly asserting that his hands are tied here by the “traditional multifactor test” and that judicial or legislative intervention might be appropriate in light of the new economic model:

The application of the traditional test of employment – a test which evolved under an economic model very different from the new “sharing economy” – to Uber’s business model creates significant challenges. Arguably, many of the factors in that test appear outmoded in this context. Other factors, which might arguably be reflective of the current economic realities (such as the proportion of revenues generated and shared by the respective parties, their relative bargaining power, and the range of alternatives available to each), are not expressly encompassed by the Borello [common law] test. It may be that the legislature or appellate courts may eventually refine or revise that test in the context of the new economy. It is conceivable that the legislature would enact rules particular to the new so-called “sharing economy.” Until then, this Court is tasked with applying the traditional multifactor test of Borello and its progeny to the facts at hand. For the reasons stated above, apart from the preliminary finding that Uber drivers are presumptive employees, the Borello test does not yield an unambiguous result. The matter cannot on this record be decided as a matter of law. Uber’s motion for summary judgment is therefore denied.

In other words the Court, as it sees it, has applied pertinent substantive and procedural law to the arguments and facts before it here, but new legal standards may be called for that could conceivably lead to a different result.

The case remains pending, Judge Chen having certified a class of California drivers last month.  Stay tuned.

Posted in Class Action, Labor Law, Litigation, Ride Sharing

FTC Hosts Robust Discussions on the Sharing Economy

Over the summer the U.S. Federal Trade Commission held a workshop entitled “The ‘Sharing’ Economy: Issues Facing Platforms, Participants, and Regulators.”  The majority of the workshop was conducted by professors and FTC officials, with several notable exceptions.

The regulation of transportation network companies (TNCs) by the California Public Utilities Commission was addressed by CPUC Commissioner Catherine J.K. Sandoval. Among other things, Commissioner Sandoval cautioned new market entrants “to work with your regulator” and against proceeding without the appropriate license (tweets below from predecessor to @SELawBlog)

The early afternoon panel – “The Interplay Between Competition, Consumer Protection, and Regulation: Business and Regulatory Views” – featured lively debates covering both lodging and transportation.  Uber’s Ashwini Chhabra (former Deputy Commissioner for Policy & Planning at the NYC Taxi and Limousine Commission) was paired up with Matthew Daus, the president of the International Association of Transportation Regulators (and former Commissioner/Chair of the NYC Taxi and Limousine Commission).  Similarly, Airbnb’s David Hantman was matched with Vanessa Sinders of the American Hotel and Lodging Association (the National League of Cities was also represented by Brooks Rainwater).   A small sampling of their comments:

If you are looking for a relatively quick primer on the unique issues presented in the transportation and lodging sectors of the Sharing Economy, view the above discussions here.  For you diehards, the FTC received over 2,000 written comments before and after the summer workshop, all available for viewing here.

Posted in FTC

Keeping It Simple: What is the Sharing Economy?

Being a lawyer blogging about the “Sharing Economy,” I would be remiss if I didn’t first at least touch upon the meaning of the phrase.

Having researched the issue, I am not aware of any binding legal definition of “Sharing Economy,” statutory or otherwise.  In fact, what appears to be the online version of Black’s Law Dictionary displays no search results today for the phrase “Sharing Economy.”  Perhaps somewhere an aggressive municipality, in the course of drafting an ordinance, memorandum of understanding, or the like, has taken on the task of defining “Sharing Economy,” but its legal force would of course be limited to that particular city or situation.  [If you know about such an instrument, please pass it along!]  With all due respect to our public servants, I’ll go out on a limb and say that I seriously doubt any municipality, regulator, legislator or judge had a thing to do with the origin of the phrase.

But just because there does not appear to be any legal definition of “Sharing Economy” of course does not mean the phrase doesn’t have some common meaning.  Generally speaking, you will find that references to the Sharing Economy are typically meant to describe business models, businesses and/or business sectors that consist of customers purchasing or renting services or goods from the person who is actually providing the service or good and who owns or has adequate legal rights in the real estate, equipment and/or supplies necessary to provide the service or good.  Often there is a digital intermediary, or platform, such as a mobile app or website, that brings together such customers and providers for a fee, but that does not own any of the necessary real estate, equipment or supplies.  While this description probably isn’t perfectly precise or all-encompassing, it should give you a general sense of what is meant by the “Sharing Economy.”

So instead of hailing a cab owned by a taxi company and driven by one of its employees (or perhaps a cab leased by a taxi company to an independent-contractor driver), the Sharing Economy in part consists of individuals driving their own personal vehicles who enter into arrangements with platforms like Uber or Lyft to locate passengers and drive them to their destinations (for a fee divided between the individual and the platform).  Other business sectors that presently make up the Sharing Economy include lodging, finance, staffing, personal property exchanges, etc.

Objections to the phrase “Sharing Economy” include the assertion that no true “sharing” is occurring.  While an individual might make his guest room available for a weekend, or use his car to give someone a ride downtown, these services are being provided in exchange for some form of compensation.  Thus some urge we should instead be calling these business models the “Gig Economy”, “On Demand Economy”, “Rental Economy”, “Access Economy”, etc., while others prefer Peer to Peer or Collaborative Consumption.

Google search results suggest that “Sharing Economy” is presently by far the most prevalent descriptor for these new business models.  But whatever they are called now or in the future, terminology (not to be confused with binding legal definitions) is unlikely to impede their growth or regulatory scrutiny.

Posted in Definitions

First Impressions of the Sharing Economy

Some time in 2013 I first learned about mobile phone apps that could be used by anyone to summon a car for a ride.  Open the app, view and convey some information, and next thing you know somebody driving his or her own personal vehicle arrives curbside to shuttle you wherever – for a fee, of course.  Hard to deny the cool factor here, no?

Thanks to Uber I enjoyed my maiden voyage later that year while visiting family in San Francisco.  It was about 11pm on a Saturday night, and after a late dinner our hosts ordered up a ride.  An SUV pulled up minutes later, and I rode shotgun with our late twenty-something driver, who delivered us from the Embarcadero (how appropriate) back to my cousin’s apartment.

In my law practice I’m often presented with issues involving occupational licenses and state regulators.  Despite being on vacation, I quickly found myself chatting the guy up about how he came to be a driver “for” Uber.  Did he have to submit detailed personal information? Get screened and trained?  Was he licensed?  Insured?  I also quizzed him on how he and Uber get paid.  It was a friendly, informative conversation, and by the time we got to our destination I thought I understood the basics.  While I kept it to myself, I also remember thinking, for better or for worse, that the service and those like it probably wouldn’t stand a chance once regulators really sunk their teeth into them.

About twenty months and lots of rides, fares and investment dollars later, it would appear I was only half right.  Yes, many state and local regulators across the country are to varying degrees scrutinizing and regulating Uber, as well as Airbnb and other “sharing” based business models.  However, it would appear the number of companies and business sectors offering “sharing” services, and the demand for such services, is quickly growing.  The so-called “Sharing Economy” is not going away any time soon.

Utilizing technology and new business models to provide consumers (and service providers) with more choices and flexibility and downward pressure on prices has been at the center of my representation of innovative real estate brokers and websites for the past ten years, so it’s only natural for me to be excited about the expanding intersection of law and sharing economy participants.  With this blog I’m looking forward to highlighting, examining, and hopefully discussing, lawsuits, enforcement actions, decisions, current and proposed statutes and regulations, terms of use, and general business and political developments impacting the Sharing Economy.  I welcome your participation.

Thank you for visiting.

Michael

Posted in Personal