Independent Uber and Lyft drivers filed a class action against the rideshare pioneers last month alleging they are violating California antitrust and consumer protection law. They maintain they were required to charge secretly calculated fixed fares and forced to accept exclusivity terms to earn bonuses.
Plaintiffs filed suit in California Superior Court in San Francisco on June 20 on behalf of themselves and other independent contractors, arguing that such vertical price fixing schemes are per se illegal under California’s Cartwright Act.
Both Uber and Lyft famously built their businesses by using drivers whom they classified as independent contractors, avoiding much of the expense of hiring them as employees. In 2020, the companies funded support for Proposition 22, a ballot initiative that, when passed, exempted app-based companies like the defendants from treating workers as employees. Prop 22 was found unconstitutional, however, by the Alameda County Superior Court in Castellanos v. California. Castellanos is now on appeal and drawing national attention. The U.S. Chamber of Commerce last month filed a proposed amicus curiae brief arguing that classifying gig drivers as employees would have “major negative impacts on businesses, labor, and the economy.”
Plaintiffs allege the companies have increased their average take rates – the difference between what a customer pays and what the driver gets – through unfair methods of competition. The cost of services to riders and the compensation to drivers are determined by secret algorithms not disclosed to drivers or riders. This vertical price fixing harms both drivers and riders, plaintiffs say, because Uber and Lyft are able to increase customer fares while suppressing driver pay. This, the drivers say, deprives them of pricing autonomy.
Drivers are harmed in other ways, they say. Uber and Lyft vary consumer prices during surge times and by location. Drivers receive flat-dollar incentives rather than multipliers of passenger fares in these cases. Driver incentives are often smaller than the surge price presented to riders. Originally, driver pay increased by the same multiplier, but in 2016 the companies increased their profits by decoupling the fares paid by riders from the amount of the drivers’ pay. Drivers have a financial incentive to drive in surge areas at surge times, but those incentives may drop or even disappear by the time they meet their riders.
Further, the plaintiffs say, the companies employ “exclusive commitment incentives” to drivers but only if they work exclusively through the respective apps and not switch between apps for more favorable fares. The companies pressure drivers to accept all rides to not lose these bonuses, a violation of the Cartwright Act, the suit says.