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Uber faces new legal pressure over skimming 50% of drivers’ tips

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Uber, a service that lets you hail cabs from your smartphone, might be the hottest start-up in the country right now after receiving a massive new investment from Google Ventures(s goog). The company is transforming the urban transportation economy but, in doing so, its business practices are coming under increased legal scrutiny.

Earlier this month, two San Francisco cab drivers brought a national lawsuit that accuses Uber of illegally pocketing half of the 20 percent gratuity that is automatically tacked onto every ride (under Uber’s business model, the company keeps users’ credit cards on file and deducts the fare, including tip, at the end of the trip – there is no financial interaction between passenger and driver).

The recent lawsuit accuses Uber of violating California labor law, breach of contract and a handful of other claims. The suit, reported by Xconomy, follows a similar complaint in January in which a Boston cabbie sued on behalf of drivers in Massachusetts. And last summer, Chicago cab companies claimed Uber’s tip-sharing policies was illegal as part of a larger lawsuit against the company.

Uber has responded vigorously to the latest allegations. In an emailed statement, the company said the allegations are without merit and:

“Uber values its partners above all else and our technology platform has allowed thousands of drivers to generate an independent wage and build their own small businesses on their own time. Frivolous lawsuits like this cost valuable time, money and resources that are better spent making cities more accessible, opening up more possibilities for riders and providing more business for drivers.”

In the past, the company’s outspoken CEO Travis Kalanick has likened Uber’s 50 percent take as a lead-generation fee and compared it to a hair salon that charges stylists a fee to use a chair.

The legal outcome is unclear, in part because Uber’s marketing characterizes the service as providing “Everyone’s Private Driver” while the lawsuits say instead that they are employees.

While tip-splitting is ok in some circumstances — for instance, in restaurants, where tips are shared among waiters and busboys — state labor law generally forbids company owners from taking a cut. The lawsuits have also characterized Uber as acting deceptively by failing to explain to customers that drivers only receive half the tips. While customers can, of course, give additional money, Uber doesn’t encourage this practice because it would undercut the company’s efforts to promote a more frictionless ride experience.

The company, meanwhile, continues to generate buzz around the country, including in Brooklyn where it offered residents free rides last weekend.

Here’s a copy of the latest complaint, in which the San Francisco cabbies ask for class action status to represent Uber drivers across the country (other than those in Massachusetts):

Uber Tip Lawsuit

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4 Responses to “Uber faces new legal pressure over skimming 50% of drivers’ tips”

  1. Uber takes 20% of of the base rate from the driver … Gratuity belongs to the driver 100% .. that is how it is in the transportation business .. if they r taking a cut out of the drivers Gratuity even 1% that is wrong

  2. Louis Silverman

    My guess is that they are taking 10% of the meter fare as a finders fee. Which mathematically is 50% of the gratuity (fixed at 20% for metered fares). IANAL, but this is probably explicitly explained in the contract.

    For a $10.00 meter fare in Chicago, a user would be billed:
    $10.00 Meter Fare
    +$2.00 Gratuity to Driver (20%)
    +$1.25 Uber booking fee
    = $13.25

    They are probably remitting based on this calculation:
    $9.00 (90% of the meter fare)
    +$2.00 (100% of the gratuity)

    Because the gratuity is percentage based and exactly double the finders fee per fare, it stands to chance that this suit is based on a driver not reading a contract before agreeing to its terms. If the driver thought they were capturing 100% of the fare and 100% of the gratuity, they are highly mistaken.

  3. At the end of the day, depending on local and state level laws, instead of paying a fare and tip, all uber has to do is charge a fare, fee and tip (Which can be auto calculated and spit easily enough). It’s not rocket science.