Uber expense may grow as US drivers seek 57.5 cents a mile

Fifty seven and a half cents for every mile logged.

That’s the latest demand from Uber Technologies Inc. drivers in California suing to be treated like employees.

Whether the drivers can pursue pay for mileage on their own vehicles going back to 2009 is up for debate at a court hearing set for Tuesday, as the dispute over driver status moves toward a June trial. If drivers who have gotten nothing so far from the company are allowed to seek reimbursement, Uber’s potential exposure would increase sharply, possibly by hundreds of millions of dollars, according to legal experts.

The judge will also consider today whether to add more drivers to the class action, which threatens to upend the ride share company’s business model and cut into its $50 billion valuation.

The drivers earlier won permission from U.S. District Judge Edward Chen in San Francisco to press their claims as a group, seeking tips allegedly denied them as independent contractors. At the same time, Chen limited the size of the group to what Uber says is less than 10 percent of its 160,000 drivers in California. The company, founded six years ago, says most of its drivers joined in the last two years, when the Internal Revenue Service’s mileage reimbursement rate grew from 56 cents to 57 1/2 cents.

‘Ongoing liability’

Mileage reimbursement would be a tremendous ongoing liability for Uber if a jury finds the company wrongly classified its drivers as contractors, said Beth A. Ross, an employment lawyer who settled a similar case against FedEx Corp. for $227 million on behalf of about 2,000 drivers.

“It really calls into question the economic feasibility of Uber’s business model,” she said. “Which isn’t to say Uber couldn’t operate the very same service that it provides now, in a lawful manner, by treating these drivers as employees and paying them as employees, and still make money.”

But as a company that bills itself as a technology platform rather than a transportation provider, she said, Uber appears to be resisting an overhaul of its administrative infrastructure to conform with the employee model.

Jessica Santillo, a spokeswoman for Uber, declined to comment before Tuesday’s hearing, saying the company’s position is explained in court filings.

Uber has alleged in court papers that drivers originally sought to recoup expenses including car washes, upholstery cleaning, refreshments for riders, dry cleaning and satellite radio subscriptions only to abandon those claims in favor of mileage.

Arbitration agreements

Attorney Shannon Liss-Riordan asked Chen to add to the lawsuit tens of thousands of drivers hired since 2014 who were excluded because their contracts required them to resolve disputes through arbitration. Liss-Riordan based her request on a September appellate court ruling in an unrelated case she says cast doubt on the legality of the arbitration agreements.

Uber cited a California Supreme Court ruling handed down in August to keep the class capped at fewer than 15,000 drivers.

Chen has gone back and forth on the arbitration provision. At first he declared it unfair to the drivers, even after he drafted fixes to try to cure its flaws. Then, saying it was a close call, he excluded drivers operating under the 2014 agreement from the class action.

Chen said Nov. 4 he’s “taking a second look” at the arbitration clause in Uber’s 2014 contracts.

Ted Boutrous, a lawyer for Uber, exhorted the judge not to second-guess his own work that helped make the arbitration agreement bullet-proof.

‘Esteemed’ judge

“If there’s ever in history” been in arbitration clause that should withstand a challenge, it’s Uber’s, the lawyer argued.

Even as Chen continues to weigh the issue, the company has asked the U.S. Court of Appeals in San Francisco to bless its arbitration agreements as legal. The court this month declined to review Chen’s Sept. 1 ruling letting the case proceed as a class action.

James Evans, a lawyer who drafts arbitration agreements for companies, said it requires “a very significant logical stretch” for Uber to prevail on the arbitration dispute.

If the drivers win, “then the flood gates bust open and you have a much bigger class,” said Evans. He said that while it’s hard to put a figure on Uber’s potential liability, “no one could seriously doubt that it is a lot.”

“Given that Uber is privately held –for now – it is anybody’s guess how much Uber collected from California customers over the past six years, or how many miles Uber drivers have driven for those customers,” he said.

Ross said as trial draws closer, the potential for a large award can drive a settlement. Uber, though, doesn’t appear to be close to considering such an option. Chen asked earlier this month if there was “any reason why you all can’t have a discussion about” settlement talks.

“Your honor, it really goes back to the fact that this is an all-out challenge to the fundamental way the company is operating now,” Boutrous said. The lawyer said that while the company is willing to talk to the other side, he doesn’t see it leading to a resolution. “I just don’t think it makes any sense here.”

The case is O’Connor v. Uber Technologies Inc., 13- CV-03826, U.S. District Court, Northern District of California (San Francisco).