Uber and Lyft were both dealt legal setbacks in two different lawsuits last week.
The separate suits - one filed by Uber drivers and other by Lyft drivers - allege they are misclassified as independent contractors. The drivers are claiming they are employees.
Both Uber and Lyft had sought summary judgments dismissing the cases, but the judges in both cases denied their requests and the suits will be decided by juries.
The judge in the Lyft case nicely summed up the legal difficulties, complexities and confusion around how to classify on-demand economy workers. He said:
"The jury in this case will be handed a square peg and asked to choose between two round holes."
As we've pointed out in the past these lawsuits are a really big deal to on-demand and sharing economy companies.
If the courts find the drivers have been misclassified by Uber and Lyft and should have been classified as employees, the companies will face substantial fines and penalties.
They will also have to comply with a raft of labor laws and related costs (social security, workingman's comp, overtime pay, etc.) they currently don't have to deal with.
Additionally, they will have to reimburse the drivers’ expenses like they would for employees, likely including money for outlays like gas, insurance and vehicle maintenance costs.
It's not clear the business models of many of the on-demand economy companies work if they have to use employees instead of independent contractors as their service suppliers.
In other words, these suits could severely damage the on-demand economy. Because of this, expect the deep pocketed on-demand economy companies to vigorously defend themselves.
Also expect a wave of additional lawsuits as our legal systems tries to reconcile the realities of the new economy with old definitions of work and employment.