Friday, January 3, 2020

You may have seen news that Uber filed a lawsuit against the state of California on New Year’s Eve, challenging the state’s new employee classification law — a law that could force Uber to reclassify its drivers as full-time employees, and therefore deliver a gut-punch to Uber’s business model.

That led us to wonder: what has Uber ($UBER) been saying about driver classification issues, anyway?

The company’s most recent quarterly filing was published on Nov. 5. It had lots to say about worker classification laws generally and the California law (known as Assembly Bill 5) specifically, such as this passage from the Risk Disclosures section:

Government authorities may, and private plaintiffs have and other private plaintiffs may, bring litigation asserting that Assembly Bill 5 requires drivers in California to be classified as employees… If we are required to classify drivers as employees, this may impact our current financial statement presentation including revenue, incentives and promotions…

Uber went into more detail in the Management Discussion & Analysis section, where it said drivers have already started filing mis-classification lawsuits against the company and more are likely to come.

Uber also said it’s pushing a ballot referendum question to go before California voters that would neutralize much of AB 5’s impact; and said it continues to “explore legal options,” although the company didn’t specifically mention a lawsuit of its own in that Nov. 5 filing. Now we know.

Moreover, aside from AB 5, Uber is already under legal siege from other drivers suing for mis-classification — and it’s settling with those drivers before things get out of hand.

For example, more than 80,000 Uber drivers have entered arbitration agreements with Uber as of Sept. 30, which the company estimates will cost $142 million to $170 million. That disclosure is also tucked away in the Risk Factors. It’s not material to Uber, which had $3.8 billion in revenue for Q3, but you won’t find those amounts unless you read the fine print.

Other Companies

OK, that’s what Uber is saying and doing about worker classification. What about other companies? We opened up the Interactive Disclosures database and searched for the term “independent contractors” used in Q3 filings.

For example, Lyft ($LYFT) discussed AB 5 in California and potential litigation that others might bring against the company under the new law. It also talked about several lawsuits Lyft itself filed in the state of New York over rules the New York City Taxi & Limousine Commission adopted to impose minimum earnings requirements for ride-sharing drivers.

How much might any of these litigation threats cost Lyft? The company didn’t say. Its own lawsuits against the New York TLC are on appeal, and the California law is still so new nobody is ready to declare what its financial consequences might be. Still, the threats are there in the filings.

And while AB 5 is primarily aimed at Gig Economy businesses like Uber, Lyft, Postmates (which is suing California along with Uber) and others, they’re not the only businesses watching this trend in legislation.

For example, Raymond James Financial ($RJF) lists worker classification legislation as a risk factor, although it doesn’t say much about the matter. Warner Music Group ($WMG) worries that AB 5 could have significant consequence if its go-to songwriters are reclassified as employees, and “there is no guidance from the regulatory authorities charged with its enforcement.”

So the risk is real, for more companies than you see in the news headline. Financial analysts will need to dig into the details to find a company’s real exposure to AB 5, but Calcbench has you covered.


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