Here are the major lawsuits and referendums that occurred against Airbnb and Uber in 2015, what they mean for the companies, and possible outcomes for those still being fought
While many investors view sharing economy startups Uber’s and Airbnb’s legal troubles as a testament to their pioneering into industries worth disrupting, lawsuits no doubt contain the risk of blocking their growth. Will both startups win or lose their major legal struggles in 2016? Here, we analyze the critical challenges facing Uber and Airbnb and their chances of winning each in a court of law.
Challenge 1: The classification of an employee and their rights
Uber is currently fighting a lawsuit in San Francisco which seeks to reclassify its drivers as employees, rather than 1099 contract workers. If successful, it would mean that Uber would have to provide many of the benefits that taxi companies give to their employees. The lawsuit is mirrored by a bill passed by the Seattle city council, which gives ride sharing drivers the ability to unionize. This gives them collective bargaining rights, and the possibility of the same benefits that the court case plaintiffs are seeking.
Both of these set a precedent that drivers across the country can refer to, where Uber drivers are employees, with all the rights and benefits that entails. This creates added expenses, something they do not need since they have serious trouble making money. Uber’s biggest selling point, the reasonable cost of a ride on their service, would go the way of the dodo in order to cover new costs. Perhaps it is this reason that Uber has started to look at other forms of monetization in the form of Uber Everything.
Win/Lose: Toss up
Both the lawsuit and bill look to change what it means to be a 1099 worker, which only stands to hurt businesses that use freelancers. The odds of either succeeding or remaining unchanged are slim. Uber is very clear that the people it hires as drivers are 1099 workers so that they can work when they want for as long as they want, which they could not do as employees: This is part of why they do not need to provide benefits.
However, this does not mean that Uber is out of the woods. A common complaint leveled against the company is that the money they take from ride payments often leaves little left for the drivers after gas, maintenance fees, and taxes, essentially negating any real benefit to driving for them.
Even though Uber drivers are 1099 workers, they are still entitled to a living wage. So if the amount left over after Uber takes its share and other fees comes out to less than the minimum wage, the drivers could have reason to sue. Unlike Lyft, Uber drivers are not supposed to ask for tips, so if their wages are less than the minimum wage after fees, Uber’s payment structure could be questioned in court.
Challenge 2: Health issues
Airbnb does not require health and safety checks of the properties featured on their site, which came to light when Zak Stone published an article on Matter that detailed the horrific death of his father at an Airbnb rental.
Zak explained that his father’s death was a tragic accident, but it is one that could easily have been avoidable. The trauma was further impacted by Airbnb’s policy on insurance and coverage for accidents. Airbnb does provide secondary insurance, however it is meant primarily for loss of property, something Airbnb dealt with a lot this past year. Its insurance does not cover health related damages, and to add insult to injury (no pun intended), it is meant purely to supplement renters’ own insurance, not replace it. They encourage their renters to get their primary coverage to pay for any incidences, something many insurance companies refuse to do since they do not cover commercial activity.
If another tragic incident occurs, it is possible that the grieving family could take Airbnb to court, especially if they are refused any form of aid. Just as a hotel is liable for health damages during a traveler’s stay, Airbnb will need to figure out who exactly is liable in the event of injury during an Airbnb visit.
They can’t have the best of both worlds. We think they will need to accept some liability in the form of required health and safety checks, further insurance coverage for their renters, and/or claiming some of the liability in health damages.
Challenge 3: Limits on stays
The November elections in San Francisco, Airbnb’s hometown, included Prop F. According to activists, a large portion of the Airbnb rentals on the website were rental companies or people with second homes, preventing these apartments and homes from becoming permanent living spaces. Prop F proponents claimed this helped lead to inflation and SF residents being priced out of their homes.
Prop F would have mirrored laws already in place in New York City, where it is illegal to rent a room for less than 30 days if the renter is away from the residence. This negatively impacts one of Airbnb’s largest markets: people who use the service to earn some spare change while on vacation. Should New York decide to enforce the law, it would mean the loss of one of Airbnb’s biggest money makers in a city where they need to succeed.
In the end, Prop F was defeated, leaving Airbnb stays limitless in the city by the bay.
Airbnb has already proven with Prop F that they can turn the tide of elections in their favor when it comes to restrictions on house stays. If a similar fight occurs this year, in either a court of law or on a ballot, it is highly likely Airbnb can successfully organize to defeat it.
While the New York law is a bit trickier because it not only protects available housing, but also ensures the safety of Airbnb guests in the absence of health and safety requirements, it seems unlikely that New York regulators will actively enforce the law. The cost to do so is likely more than could be made from pursuing it.
If 2015 proves anything, it’s that people may not be as tolerant of Airbnb or Uber as they once thought. If another blow like the Stone article were to come out, or if they truly disrupted major industries, which would result in losses of jobs and finances, it would change their support in the court of public opinion, an opportunity their opponents would not pass up. In essence, they have won some battles, but they have not yet won the war.
Expect all three of these battles, plus many others, to continue into 2016, and for the ensuing arguments and court cases to be harsh. While both companies may be in the legal right in certain areas, they do operate in others that are shades of grey, where the law may not have caught up to them. Like a game of Jenga, all it takes is for the wrong brick (or more specifically, court case or referendum) to fall for the entire structure to end up on the floor.