Uber Hack – Don’t Tell Anyone!

It’s been revealed that Uber’s database has been hacked, with the personal information of more than 57 million users and drivers worldwide compromised. That’s a big number, but we are becoming increasingly numb to this kind of revelation, with all the cyber-leaks now making the news. What was the more astounding aspect of this particular incident is the fact it has taken Uber over a year to reveal the security breach – with the attack taking place in October 2016.

Uber says that the hackers were able to download files containing information including the names and driver’s licence numbers of 600,000 drivers in the US, as well as the names, email addresses and phone numbers of millions of users worldwide.

Although Uber has now taken steps to notify the drivers affected by the hack, it’s reported that at the time of the breach, the company paid the hackers USD100,000 to delete the stolen data, and not reveal the breach.

In a statement, Uber CEO Dara Khosrowshani admitted that he became aware of the “inappropriate access [of] user data stored on a third-party cloud-based service” late last year, and that steps were taken to secure the data, and shut down further unauthorised access. However, Mr Khosrowshani noted he has no excuse as to why the massive breach is only being made public now.

For their roles in the cover-up, Uber chief security officer Joe Sullivan and his deputy have been ousted, while Uber says it’s taking “several actions”, including consulting the former general counsel of the US’ National Security Agency to prevent a future data breach.

This post was written by Cameron Abbott & Allison Wallace of K & L Gates.,Copyright 2017
For more legal analysis, go to The National Law Review

UK Employee Classification: Uber Drivers Uber Happy

Uber employee ClassificationAs you may have seen from the extensive press coverage, the UK Employment Tribunal has delivered its much anticipated judgment in Aslam and Farrar v Uber. The case was about whether Uber drivers are self-employed contractors, or are “workers” with rights to minimum wage, statutory holidays, sick pay and breaks, amongst other workers’ rights.

In Depth

A “worker” is someone who has entered into a contract to personally do work for, or provide services to, a third party. This contract can be implied and does not have to be in writing. If that third party is a customer of the individual’s business undertaking, however, then that individual is self-employed.

Determining the status of the relationship between businesses and those they engage involves the Employment Tribunal looking beyond the terms and conditions in place between the parties to the reality of the relationship. The Tribunal will look at a number of factors to determine the true status of the relationship, but what really matters is the Tribunal’s view of how much control the business exerts over the individual, and whether or not that tips the balance away from the individual truly having the autonomy of being self-employed.

Uber’s Position

Uber said that it did not have the necessary control over drivers because

  • It is just a “platform” (through the Uber app) that links fare-paying customers to Uber drivers, rather than a transportation business.

  • Once linked, the Uber driver uses his/her own vehicle to take the customer to the requested destination.

  • There is no obligation on the drivers to work and drivers are not performance managed or subject to disciplinary procedures, although they do receive a “rating” from customers at the end of the journey.

  • Uber does not “pay” the drivers.  The drivers receive the fare paid by the customer (collected by Uber through the platform), after the deduction of Uber’s service fee. The service fee to Uber is taken as payment for the use of the app.

  • The drivers pay for the vehicle, the expenses associated with running that vehicle and their own taxi licenses.

  • It is the end-user (Uber’s customers) who contract with the drivers; they engage the drivers as self-employed contractors.

  • The drivers accept their self-employed status for tax purposes.

  • The drivers are permitted to work for other organisations, including direct competitors of Uber; they are not required to work exclusively for Uber.

The Employment Tribunal’s Decision

The Tribunal was not persuaded by Uber’s arguments nor, in relation to some aspects, Uber’s perspective on how its business operated. The Tribunal found that Uber was, indeed, running a transportation business through which the drivers provided skilled labour, from which Uber profited. The key factors were

  • That the drivers can only use the Uber app on Uber’s terms.

  • Uber interviews and “recruits” the drivers.

  • Uber handles customer complaints and often compensates customers following these complaints. Uber’s findings in respect of customer complaints are not always shared with the driver.

  • Uber accepts liability for losses, e.g., refunds to passengers, which would usually fall to a driver who was genuinely self-employed.

  • Uber does pay the drivers.

  • Uber’s ratings system (whereby the customer would rate the driver following the completion of a journey), is essentially a performance management procedure that could result in the driver being disconnected from the app.

  • Fares are fixed by Uber.

  • The language used by Uber in its PR communications is inconsistent with their argument that the drivers are self-employed.

What’s Next?

Uber has confirmed to customers and the press that it will be appealing the decision. In order to get an appeal off the ground, however, Uber will need to identify an error of law in the Tribunal’s judgment, or show that it had reached a decision which no reasonable tribunal could have reached on the facts.

How Does This Affect My Business

The analysis of an individual’s employment status will depend on the facts of each individual case. The Uber judgment therefore does not necessarily mean that all companies within the gig economy, or who engage self-employed contractors, must now give these individuals workers’ rights.

It does, however, serve as a useful reminder to review your workforce, consultancy/contractor agreements and other documents/communications and processes. Keep in mind, however, that were there to be a dispute over the status of the working relationship, a tribunal or HMRC would look beyond the contractual documents to the true relationship of the parties.

ARTICLE BY Katie L. Clark & Paul McGrath of McDermott Will & Emery

© 2016 McDermott Will & Emery

Can Employees Commute Tax-Free on Uber or Lyft?

employee commuter expenses Uber, Lyft, and their competitors, offering handy apps, responsive drivers and competitive prices, are fast becoming a favored commuter option.  Many employers either subsidize employee commuter expenses or allow employees to pay for commuter expenses through payroll deductions.  Under current law (Internal Revenue Code Section 132(f)) and regulation, these expenses can be tax-free (up to certain dollar limits) if they are incurred through qualifying commuter highway vehicles, van pools, transit passes, parking, and bicycles.  Many employers and employees are asking: can Uber and Lyft commutes be provided tax-free?

A quick dive into the legal weeds

Of the types of qualifying commuter expenses, only the “van pool” exemption potentially applies to Uber and Lyft.  Generally, the fair market value of qualifying “van pool” benefits may be excluded from an employee’s income up to $255 per month (2016).  Slightly different rules apply depending on whether the van pool is employer-operated, employee-operated, or “private or public transit operated.”

In the case of employer-operated or employee-operated van pools, the vehicle in question must seat at least six adults (excluding the driver).  In addition, at least 80% of the vehicle’s mileage must be reasonably be expected to be (1) used to transport employees between their homes and jobs and (2) used on trips during which the number of employees transported for commuting is at least 50% of the vehicle’s adult seating capacity (excluding the driver).  This is the so-called “80/50” rule.  A “private or public transit operated” van pool vehicle must also seat at least 6 adults (excluding the driver) but is not required to meet the 80/50 rule.  But what’s a “private or public transit operated” van pool?

The regulations say that the van pool must be “owned and operated either by public transit authorities or by any person in the business of transporting persons for compensation or hire.”  In a series of Information Letters (IRS Info. Letters 2014-00282015-0004, and 2016-0004) the IRS suggests that the issue is factually-charged, and that a van owned by a private vendor will not automatically qualify as “private or public transit operated”.  Here are some key excerpts from IRS Info. Letter 2016-0004:

“The term “operate” is not specifically defined in Code Section 132 or the regulations. However, the Merriam-Webster Dictionary definition of “operate” includes “to use and control (something); to have control of (something, such as a business, department, program, etc.).”

“Thus, in determining whether a van pool is “operated” by an employer, an employee, or by a private or public transit authority, factors such as who drives the van, who determines the route, who determines the pick-up and drop-off locations and times, and who is responsible for administrative details would all be relevant factors.”

What case is the IRS making here exactly?  Is the IRS saying that a van pool can be “employer-operated”, “employee-operated”, “private or public transit operated” or possibly none of the above?  Or, is the IRS suggesting that some van pools that individuals or employers consider to be “private or public transit operated” should actually classified as “employer-operated” or “employee-operated” (and subject to the 80/50 rule)?  Clarification from the IRS would be most welcome.

Application to Uber and Lyft

Can employers provide or facilitate tax-free Uber or Lyft rides?

  • First, Uber or Lyft must actually be a “van pool”. Uber does have an “UberPool” service, and Lyft offers “Lyft Line”, which are meant to carry several passengers in the same direction and would seem to qualify.
  • Second, the vehicle used for the pool must seat at least six adults (not counting the driver). In Boston (where I live), the UberPool service currently maxes out at 4 riders (and would not qualify).  In New York City, however, Uber has begun offering UberPool in six-passenger vehicles. So currently UberPool clears this hurdle, but only in some markets.  (In fairness to Lyft, I was unable to easily dig up similar information on Lyft Line.)
  • Third, are UberPool and Lyft Line “private or public transit operated”? In spite of the frustratingly unclear series of IRS Information Letters cited above, signs point to “yes”.  IRS regulations (which trump Information Letters) require that the pool services be “owned and operated by [a] person in the business of transporting persons for compensation or hire.”  This test seems to be satisfied whether the “person” is the corporate entity or the individual driver.

In sum: Lyft and Uber can potentially qualify as tax free benefits, if the cars seat at least six passengers plus a driver.  But read on . . .

Anything else to worry about?

Even if the “van pool” hurdle is overcome, there are some administrative issues to consider.  While none of these hurdles are insurmountable, they promise to add a layer of hassle for employers.  For example:

  • The IRS directs employers to provide vouchers (or something similar) to employees, which the employees may then use to pay for van pools. Cash reimbursements may be used in lieu of vouchers only if vouchers are not readily available.  Employers will need to determine whether something like a voucher system can be arranged with Uber or Lyft, and if not, the employer must honor the IRS’ cash reimbursement substantiation rules.
  • If the benefit is provided through pre-tax payroll deductions, advance elections (in writing or electronic) must be made by employees. The employer will need to arrange a system to do so.
  • Employers will need to figure out how to value the Uber or Lyft rides. Generally, the fair market value of the benefit is based on all the facts and circumstances. If a car seats six, but the employee rides alone, should the employee be reimbursed tax free for 1/6 of the fare or the entire fare?  Or should the value be based on the value of one seat in an ordinary van pool in the employee’s market?  Or the entire fare paid by the employee?  Note also that there are a number of vehicle valuation rules under the Internal Revenue Code that may be useful.  Each employer should confer with its accountants and tax counsel on this point.
  • Finally, employers need to determine whether it makes sense to offer Uber and Lyft commuter benefits as part of a transportation benefit package.  In addition to the added administrative burden, there are optics issues.  Proliferation of these policies could cause commuter spending to be redirected from public transportation to Uber and Lyft, creating an argument that the practice is not environmentally forward.  Employers should also consider whether any applicable state or municipal laws or ordinances might impact an employer’s transportation benefits.

Conclusion

Based on current guidance, it appears that rides provided to commuters by Uber, Lyft and their competitors may, in some cases, be framed as tax-favored commuter benefits.  However, it remains to be seen whether the IRS will take steps to curtail this practice.   Employers should carefully consider IRS guidance and administrative concerns, and consult with counsel, before including Uber and Lyft in their transit reimbursement benefits.

Two Timing Employee Caught in the Act – Uber Unfortunate!

uber employee moonlightingAn employee of West Australian Newspapers Limited (WAN) who moonlighted for Uber was caught in the act when, one Saturday night, he picked up a WAN manager.

Despite being well and truly busted, the employee (who worked night shifts as WAN’s newspaper machinist) denied having any affiliation with Uber, saying that his wife had the Uber business and he just occasionally drove her car to the petrol station or car wash. He also initially denied picking up the WAN manager, but in a classic case of #absolutelysprung, quickly reneged from this position when shown the receipt identifying him by name and picture as the Uber driver.

It was clear from the employee’s employment contract that he was required to seek WAN’s permission before working a second job.  It was also clear from WAN’s codes and procedures, as well as discussion at toolbox meetings (which the employee attended), that WAN had a duty of care to manage the safety risk of fatigue arising from night shift work.

When WAN investigated the matter, the employee refused to answer its questions or produce documents and conducted himself in an obstructive manner causing the employment relationship to become untenable. The employee was subsequently dismissed and claimed unfair dismissal on the basis he was confused as to the meaning of having a ‘second job’ (#goodtry)

Amid the cobweb of lies (including that his wife must have completed his Uber registration without his knowledge), it was revealed that the employee had driven as an Uber driver on at least 15 occasions. The Fair Work Commission upheld the dismissal stating that the employee deliberately provided misleading information to WAN and ultimately, was the “architect of his own demise” (#nowafulltimeUberdriver)

© Copyright 2016 Squire Patton Boggs (US) LLP

To Be or Not To Be an Uber Employee: That Is [and will Remain] the Question

Federal judge probes deep on Uber’s proposed deal with drivers in 2 states as drivers in the other 48 sue, yet ride-sharing giant appears set to avoid trial on merits of misclassification issue

uber employeeIf you are waiting for an answer to the question of how workers in the “gig economy” should properly be classified, you probably should not hold your breath.

As the ride-sharing tech company Uber has grown into a megacorporation, on-demand workers have kept up a steady pace of lawsuits against it (and against its competitor, Lyft) on the theory that they are employees misclassified as independent contractors. While there is disagreement among courts, agencies, legal scholars and practitioners on the issue, most might agree on one thing: the traditional framework of employee vs. independent contractor does not account for today’s new tech-driven gig economy. Neither classification is a good fit for work performed on demand through a smartphone app that controls price and other operating standards. Yet a new, more fitting worker classification from Congress is highly unlikely. In effect, classifying workers in the gig economy will continue to present a legal quagmire for years to come.

From Uber and Lyft’s perspective, a legal quagmire (i.e., the status quo) appears to be the preferred course. After all, despite high litigation costs, the company has grown exponentially in recent years, expanding into 449 cities since it officially launched in 2011 and amassing a value most recently estimated at $68 billion. This success is attributable in part to Uber’s lucrative business model. The company avoids the costs of an employment relationship with millions of drivers while profiting from the service they provide via its smartphone app. It connects supply with demand (i.e., people who need rides) by providing a hassle-free platform for the transaction to take place. And by setting the price and imposing other usage requirements and “suggestions” for drivers using its app, Uber has developed a relatively uniform and reliable standard of service that has built brand trust from customers. On the flip side, it offers a relatively flexible means for almost anyone with a driver’s license and a car to earn additional income.

To maintain this advantageous operating model, Uber is trying to keep the misclassification issue from going to a jury. This means settling two class actions with some 385,000 California and Massachusetts drivers involving claims for business expenses and gratuities. Its proposed $100 million settlement to resolve both actions has been pending before the federal court in the Northern District of California since late April 2016. The court recently sent the parties scrambling to provide additional information which the court said it needs to determine whether the settlement is fair. To pre-approve the deal, the court has to conclude it is fair to all unnamed class members—i.e., all drivers in California and Massachusetts who have used the app since August 16, 2009. The court noted that a more probing inquiry is warranted here because the settlement seeks to (1) apply to drivers previously excluded from the class and (2) encompass claims not previously asserted in the case, but asserted and still pending in other lawsuits.

Under the settlement agreement, Uber would provide monetary and non-monetary relief, but it would not reclassify drivers. Specifically, Uber would pay out $84 million, and an additional $16 million if Uber’s future value (at its initial public offering) reaches 1.5 times its most recent valuation. Of the $84 million, $8.7 million would be taxable as wages. After shaving off sums for class administration, attorneys’ fees, and to compensate the named and contributing class members, the remaining fund would be split, with $5.5-$6 million going to Massachusetts drivers and $56-$66.9 million to California drivers. Drivers who drove the most would receive a few thousand dollars payout, while most drivers would receive a few hundred.

The settlement would not resolve the ultimate issue of whether Uber drivers are employees or independent contractors. Rather, it would allow Uber to continue operating in its current business model treating drivers as independent contractors. Yet at the same time, the settlement includes certain operational changes that would provide drivers with more job security than most at-will employees enjoy. For one, Uber agreed to write a comprehensive deactivation policy whereby it would only deactivate drivers from the app for sufficient cause, and it would share this list of reasons with drivers. Uber would also provide drivers with at least two advance warnings before they are deactivated from the app, with certain exceptions such as if a driver engages in illegal conduct. Uber also promises to provide the reason(s) for deactivation and develop an appeals process for drivers who believe they have been deactivated unfairly. Further, Uber agreed to recognize and fund a “drivers’ association” to enable dialogue between the company and its drivers. Uber also agreed to other measures such as providing more information about its rating system and making clear to customers that tips are not included in its fare price.

If the court denies approval of the settlement, this would be a major blow to the ride-sharing company. In the current proceedings, it would require Uber to offer more, else go to trial. The court’s refusal to approve this deal would also set a precedent for courts in subsequent class actions against Uber, such as one recently filed in Illinois federal court, where other judges may be inclined to take a similar approach to any proposed deal with other classes of drivers. Further, a finding that the proposed deal is not fair to unnamed class-members could embolden more drivers to sue and could tilt the scales in future settlement negotiations with other plaintiffs.

Even if the court in California approves this deal, Uber has a long road ahead. While this settlement may provide a temporary stopgap in California and Massachusetts, it creates an incentive for drivers elsewhere to sue. Less than two weeks after Uber proposed this $100 million settlement with the two states’ drivers, the company was hit with another putative class action – this time with drivers from the remaining 48 states. The new lawsuit filed in Illinois federal court likewise concerns worker classification and claims for tips, overtime, and expenses.

Meanwhile, Uber’s competitor Lyft recently achieved pre-approval of its settlement with California drivers in the federal class action of Cotter v. Lyft, Inc.—but only after it appeased the judge by increasing the value of the settlement from $12 million to $27 million. In addition to higher payouts for mileage reimbursements and other expenses, the settlement includes operational changes. Similar to Uber, Lyft agreed to changes that give drivers more job security, such as providing a finite list of reasons for a driver’s deactivation. Other changes give drivers more control over when, where, and for whom they drive, which makes the arrangement more reflective of a classic independent contractor relationship. The Uber court cited to Cotter in its recent order, and may continue to measure Uber’s proposed deal against this benchmark.

Uber’s implementation of arbitration clauses in its driver agreements should help it dodge a future of many more large-scale class actions by drivers of every other state. In Maryland and Florida, for example, two other attempted class actions with similar claims against Uber are going to arbitration. Even so, the classification of workers in the gig economy will remain a hot-button issue for the foreseeable future, and Uber seems poised to remain at the center of it.

© 2016 Honigman Miller Schwartz and Cohn LLP

Ride Hailing: Will We Continue to Uber and Lyft, or Will We Start to “VW?”

Volkswagen’s $300 million investment in ride hailing service Gett is not exactly earth shattering news these days for the automotive industry. But what did catch our eye was what Volkswagen said,

Ride-hailing will be at the center of our new ‘mobility on-demand’ business, which we are building as the second pillar alongside the classic automobile business.

“Second pillar.” Let that sink in a second. The first pillar, we assume, is the design, manufacture and sale of vehicles of every kind. But that second pillar is a service industry. For now that service includes people driving cars. What happens when we no longer need the drivers because the cars are autonomous?

ride hailing Gett VWOf course, Gett drivers will have the opportunity to buy Volkswagens at “attractive terms” – all the better to put more Volkswagens on the road. And, of course, this is not the first relationship of its kind. GM and Lyft already have a partnership going on. Uber is leasing Toyotas to drivers.

With autonomous vehicles coming, with every OEM partnering with a ride hailing/sharing company, and in a world where Uber attracts $3.5 billion (with a “B”) investment from the Saudi Public Investment Fund, it might be worth asking whether some day we will not go to the “Toyota” dealer to buy a car, but, instead, to the Uber dealer – presuming we buy a car at all. In just a few years, Uber has obtained a valuation that may exceed GM and many others. Based on all that information, maybe Volkswagen should refer to its new service industry venture as the “First pillar.”

© 2016 Foley & Lardner LLP

Uber Aims to Settle Two Class Actions; Approximately 385,000 Uber Drivers in California and Massachusetts to Remain Independent Contractors – At Least for Now

Last Thursday, Uber settled two closely-watched class actions contesting Uber’s classification of approximately 385,000 drivers in California and Massachusetts as independent contractors as opposed to employees. While the plaintiffs viewed the settlement as a victory, so likely did Uber, as it allows Uber to continue to pursue an on-demand independent contractor service business model.  The court, however, still needs to approve the settlement and whether it will do so is not clear.

As part of the proposed settlement, Uber agreed to pay $84 million to the drivers. If Uber holds an initial public offering and its valuation goes above $93.75 billion within one year, Uber will pay an additional $16 million to the drivers bringing the total settlement to $100 million.  After reducing the pot to account for attorneys’ fees and other costs, the individual payments, based on the number of miles driven by each driver, range from nominal amounts up to $8,000, although the majority of class members may just walk away with less than $100.  Uber further agreed to revise its termination practices so that drivers must generally be given warnings and explanations before Uber can deactivate them from its software application.  Drivers will also be able to appeal terminations and will enjoy a more driver-friendly tipping policy.

Many consider $84 million, or even $100 million, a well-spent business expense for Uber, who potentially had to spend hundreds of millions, if not billions, of dollars to reclassify its drivers and comply with the requirements of minimum wage, overtime, workers compensation, anti-discrimination, benefits, sick leave, and other federal, state and local laws that apply to employees.

But Uber is not out of the woods yet. First, as mentioned earlier, the court must approve the settlement and there is no guarantee that it will.  Just a few weeks earlier, a California judge rejected a proposed settlement of similar litigation between Uber’s competitor, Lyft, and its drivers in part because it “short-changed” those drivers.  Under that settlement, Lyft drivers would have received an average of $56.  Second, Uber is settling lawsuits with its former and existing drivers in California and Massachusetts, but lawsuits in other states remain outstanding and new ones could be on the way.  Stay tuned for further developments.

©1994-2016 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.