A silver lining seemed to peak through a disappointing IPO for Uber
, when the Federal Labor Board’s general counsel released an opinion earlier this week agreeing with the company that all people who drive for the company are independent contractors
, not employees of Uber.
While this distinction is a central part of how Uber plans on becoming profitable, not then needing to payout benefits or overtime to drivers, the classification has proven to be a little bit more complicated than the company once anticipated. In part due to how drivers are categorized by the company, Uber encouraged its drivers to seek arbitration in order to settle any disputes they may have.
Well, drivers did, and they did so en masse, with 60,000 drivers filing or intending to file arbitration proceedings with the company. A conservative estimate provided by Nancy Cremins
, general counsel at Globalization Partners, estimates the cost of each arbitration could be around $10,000, potentially putting Uber $600 million in the hole to deal with this problem alone. A more realistic estimate puts legal fees for each case at $20,000, meaning Uber may need to pay nearly $1.2 billion in legal fees alone to resolve the arbitration cases currently on its plate. Filing fess— the paperwork required just to get each case rolling— is going to take $1,500, a figure Uber cited in its SEC paperwork. By comparison, the two class action suits Uber settled cost them all together $20 million in rewards.
While arbitration generally benefits companies by keeping settlements private and plaintiffs separated as opposed to class actions which are public, these two facts work against the company here. Each case now must be resolved on its own, with the previous rulings unable to inform or speed up the settlement process, which can take months to work out. The overwhelming amount of cases and ongoing process makes arbitration a regular legal expenditure the unprofitable company is going to have to stomach.
These estimates do not include how much money the company may need to mete out in rewards for each settlement, meaning that legal bills will climb.