App-based ride service Uber, and smaller rival Lyft, face separate lawsuits seeking class action status in San Francisco federal court, brought on behalf of drivers who contend they are employees and entitled to reimbursement for expenses, including gas and vehicle maintenance. The drivers currently pay those costs themselves.
A ruling against either company could significantly raise their costs beyond the lawsuit's scope and force them to pay social security, workers' compensation and unemployment insurance. That could affect the valuations for other startups that rely on large networks of individuals to provide rides, clean houses and other services.
At a court hearing on Friday, U.S. District Judge Edward Chen said Uber's bid for a pretrial ruling its drivers are contractors is a "tough argument" to make, given that the drivers serve Uber's business goals.
"The idea that Uber is simply a software platform, a service provider and nothing else, I don't find that a very persuasive argument," Chen said.
Ultimately, a jury might have to decide the issue, he added.
The hearing came a day after a similar one involving Lyft. In that case, U.S. District Judge Vincent Chhabria said whether drivers are employees or contractors is "very difficult" to decide, but that California law appears to favor the drivers. Chhabria has not yet ruled.
Uber has raised more than $4 billion from prominent venture capital firms such as Benchmark and Google Ventures, valuing the company at $40 billion and making it the most valuable U.S. startup. Lyft has raised $331 million from Andreessen Horowitz, Founders Fund and other investors.
The drivers have not yet specified how much money they are seeking in damages.
Drivers argue they should be considered employees because Uber and Lyft can hire and fire them and require them to accept a certain percentage of rides, and to pass background checks.Uber and Lyft counter that drivers control their own schedules, are not assigned a territory, and are not supplied with any equipment apart from an iPhone and a sign.