×

Uber ruling may reverberate through Silicon Valley

Ride-hailing giant Uber was just dealt another blow in an ongoing case over the classification of its drivers in California. A U.S. judge expanded the scope of the suit Wednesday, allowing drivers who did not opt out of an arbitration clause to participate.

U.S. District Judge Edward Chen in San Francisco granted the case class-action status in September, but said drivers who had waived their right to class-action arbitration, by not opting out of a clause, could not participate. In the expansion Wednesday, Chen said parts of Uber's arbitration agreements were "unenforceable." Wednesday's news stands to widen the scope of a case that will reverberate through Silicon Valley and the broader sharing, or gig, economy, which connects freelancers with available work and includes everything from car and home sharing to hiring workers to run errands and deliver food.

The ruling could prompt the transportation start-up to reframe its business model, said industry analyst Jeremiah Owyang, founder of Silicon Valley-based Crowd Companies. If Uber has to front costs for for its drivers' fuel, insurance and other related benefits, overall business costs of course would increase.

Drivers are suing over their classification as independent contractors, instead seeking to be classified as employees. They also want reimbursement for fuel and mileage costs they have covered themselves out of pocket.

Read MoreUber drivers' suit given class-action status

Uber drives sits next to a yellow cab.
Roberto Machado Noa | LightRocket | Getty Images
Uber drives sits next to a yellow cab.

Plaintiff's attorney Shannon Liss-Riordan of Lichten & Liss-Riordan in Boston, says the ruling is "significant."

"This is great news for the drivers as the class the court has certified will now allow many more Uber drivers to participate in this litigation," said Liss-Riordan, who is also representing drivers for Uber's rival Lyft in a similar case.

The certification of the expense reimbursement class is also important, she says, as those are the primary damages the plaintiffs are seeking. It is not yet known how large or how costly it might get. Uber said the initial class size of every driver who has ever used its app in California could be as large as 160,000, but in September said its initial estimates were that the class might be less than 15,000.


An Uber representative told CNBC by email that the company plans to appeal the court's decision immediately, adding Uber feels confident it will win the case.

"Nearly 90 percent of drivers say the main reason they use Uber is because they love being their own boss," the Uber representative said. "Drivers use Uber on their own terms; they control their use of the app along with where and when they drive. As employees, drivers would lose the personal flexibility they value most — they would have set shifts, earn a fixed hourly wage and be unable to use other ridesharing apps."

Uber is currently the most valuable privately held start-up on the globe, and in the process of adding more billions to its sizable war chest. According to Re/code, Uber is currently in the process of raising an additional $2.1 billion at a valuation of $62.5 billion. Right now Uber is available in 67 countries.