No Lyft news today, but plenty about Uber! This time, it’s Uber suing another company instead of being sued by drivers, plus, Uber says it will pay us drivers basically what ever it feels like paying us. Sound familiar? In today’s round up, RSG senior contributor John Ince covers Uber’s new fight against a proposed class-action lawsuit, the departure of one of Uber’s top officers, and a bribery case against Uber in Asia.
Uber: We don’t have to pay drivers based on rider fares [Ars Technica]
Sum and Substance: Uber is fighting a proposed class-action lawsuit that says it secretly over charges riders and under pays drivers. In its defense, the ride-hailing service claims that nobody is being defrauded in its “upfront” rider fare pricing model. The fares charged to riders don’t have to match up with the fares paid to drivers, Uber said, because that’s what a driver’s “agreement” allows. “Plaintiff’s allegations are premised on the notion that, once Uber implemented Upfront Pricing for riders, it was required under the terms of the Agreement to change how the Fare was calculated for Drivers,” Uber said (PDF) in a recent court filing seeking to have the class-action tossed. “This conclusion rests on a misinterpretation of the Agreement.” The suit claims that, when a rider uses Uber’s app to hail a ride, the fare the app immediately shows the passenger is based on a slower and longer route compared to the one displayed to the driver. The rider pays the higher fee, and the driver’s commission is paid from the cheaper, faster route, according to the lawsuit. Uber claims the disparity between rider and driver fares “was hardly a secret.”
“Drivers,” Uber told a federal judge, “could have simply asked a User how much he or she paid for the trip to learn of any discrepancy.” A contract is a contract. Uber doesn’t consider its drivers employees, and it doesn’t call their pay “commissions.” Instead, it allows drivers to keep the fare presented to them in the Uber driver app, even if the fare is different than what the rider was charged. The driver then pays Uber a “service fee”—a percentage of the fare earned by the driver.
The San Francisco-based ride-hailing service also claims that it took “significant risk” under this “upfront” fare pricing model, which began last year. Plaintiff further alleges that, after Upfront Pricing began, Drivers continued to earn based on the trip’s distance and the amount of time it actually took to complete the trip. Plaintiff claims the Upfront Price is often higher than the Fare, which is the basis of what is remitted to him. He neglects to mention, however, the significant risk placed on Uber, not Drivers, by Upfront Pricing: the User’s Upfront Price may just as easily disadvantage Uber, for example, where an actual trip takes longer than expected, yet the Driver’s earnings calculation remains constant.
What’s more, a rider might also pay Uber more than what the driver’s fare is based on because a driver’s contract allows Uber to “adjust” the fare known and paid to the driver, according to Uber’s legal filing. “The Agreement allows Uber to adjust the Fare under various circumstances. For example, Uber is permitted to make changes to the Fare Calculation based on local market factors,” Uber said in its federal court response. “Likewise, Uber may adjust the Fare based on other factors such as inefficient routes, technical errors, or customer complaints.” And here’s the kicker: Drivers disclaim any right to receive amounts over and above the Fare produced by the Fare Calculation. The suit, which seeks class-action status, demands back pay and legal fees. It wants a Los Angeles federal judge to halt the alleged “unlawful, deceptive, fraudulent, and unfair business practices.” A hearing is set for December 1.
My Take: The quote that stands out to me from this article is “Uber claims the disparity between rider and driver fares ‘was hardly a secret.’ ” Come on… Since day one, there has been an implicit assumption that both Uber and Lyft take commissions on driver fares.
Okay, so drivers don’t spend the time to examine the driver agreement with a magnifying glass, but this choice of phrase is just so disingenuous. Commissions have been a pillar of the whole structure. Commissions have been the operative term to describe the financial arrangement since day one in this business.
Now, under pressure to make a profit, suddenly Uber’s lawyers disavow the concept of commissions. Here’s the tragedy of this kind of maneuver: Uber has over 2 million drivers worldwide. Every one of those drivers could be a brand ambassador for Uber. But by playing this kind of game with drivers, they’ve turned potential brand ambassadors into brand assassinators. Uber management is missing out on a huge opportunity – and this lawsuit defense encapsulates all that is wrong with this company.
Uber’s Chief Legal Officer to Leave the Company, Sources Say [Bloomberg]
Sum and Substance: Dara Khosrowshahi, the new chief executive officer at Uber Technologies Inc., … said his top priority was hiring a chief financial officer who can help the company balance its need to control spending with continued growth, said two people who listened to the presentation. Khosrowshahi is also seeking a replacement for Uber’s longtime legal head … Hours later, Chief Legal Officer Salle Yoo sent an email to employees, saying she would step down after helping Khosrowshahi find her successor. Yoo has been in charge of Uber’s legal efforts for about five years.
Although she was mostly successful in helping the company navigate tricky regulatory quandaries, the San Francisco company now faces a legal nightmare. The issues include federal probes into potential foreign bribes and the use of software to thwart law enforcement stings, as well as lawsuits alleging mistreatment of drivers, mishandling of a rape victim’s medical records in India, trade-secrets theft and illicit efforts to sniff out information from competitors…. Yoo’s exit wasn’t a surprise to insiders, who have grown concerned as Uber’s legal woes pile up. Joseph Spiegler, the global head of compliance who was tasked with ensuring Uber follows the law, also resigned recently. But Yoo’s position is a particularly vital role Khosrowshahi needs to fill, among many others. Executive turnover has been extensive this year, with the losses of the company’s president, two board members, and the heads of business, engineering, finance, policy, product and self-driving cars.
My Take: Looks like new Uber CEO Dara Khosrowshahi has begun house cleaning at Uber in earnest. Finding a replacement for Sally Yoo isn’t going to be easy – not because she’s irreplaceable, but because the job itself is so daunting.
Uber has over 250 lawsuits pending. How do you prioritize all that? How do you oversee all the lawyers who are each trying to finesse their way out of some legal predicament? But this is what lawyers do. Surely there’s someone out there who is willing to take on this challenge. DK, after all, went through the same process and decided to accept mission impossible.
Uber Faces Widespread Asia Bribery Allegations Amid U.S. Criminal Probe [Bloomberg]
Sum and Substance: Uber Technologies Inc., facing a federal probe into whether it broke laws against overseas bribery, has embarked on a review of its Asia operations and notified U.S. officials about payments made by staff in Indonesia, people with knowledge of the matter said. As the Justice Department looks into a possible criminal case, Uber is working with law firm O’Melveny & Myers LLP to examine records of foreign payments and interview employees, raising questions about why some potentially problematic business dealings weren’t disclosed sooner, said the people, who asked not to be identified because the details are private. Attorneys are focused on suspicious activity in at least five Asian countries: China, India, Indonesia, Malaysia and South Korea. For instance, Uber’s law firm is reviewing a web of financial arrangements tied to the Malaysian government that may have influenced lawmakers there, the people said.
Uber said it’s cooperating with investigators but declined to comment further. Wyn Hornbuckle, a Justice Department spokesman, declined to comment. Late last year, Uber had a run-in with Indonesia police over the location of an office in Jakarta providing support to local drivers, people with knowledge of the events said. Police officers said the space was outside city zoning for businesses, so an employee decided to dole out multiple, small payments to police in order to continue operating there, the people said. The transactions showed up on the employee’s expense reports, described as payments to local authorities. Uber fired the employee, the people said. Alan Jiang, the company’s head of Indonesia business who approved the expense report, was placed on a leave of absence and has since left the company. Jiang didn’t respond to requests for comment. At least one senior member of the legal team at Uber initially decided not to report the incident to U.S. officials when he learned of it late last year, the people said. After the Justice Department approached Uber about possible violations of the Foreign Corrupt Practices Act, Uber informed officials about what happened in Indonesia. The Justice Department can be more lenient when a company voluntarily discloses information.
Uber’s law firm is also investigating a corporate donation, announced in August 2016, of tens of thousands of dollars to the Malaysian Global Innovation and Creativity Centre, a government-backed entrepreneur hub. Around that time, a Malaysian pension fund, Kumpulan Wang Persaraan (Diperbadankan), invested $30 million in Uber, said people familiar with the deal. Less than a year later, the Malaysian government passed national ride-hailing laws that were favorable to Uber and its peers. Lawyers are trying to determine whether there was any form of quid pro quo.
My Take: The fact that Uber has come forward and is proactively trying to determine the extent of their potential violation of international bribery laws is, I suppose, a good sign. My guess is DK wants to make a clean break from the past on this. By coming clean he also may get some leniency from authorities.
Uber’s allegations are ‘unsubstantiated, completely without merit, and purposefully inflammatory’ [Business Insider]
Sum and Substance: A growing roster of marketers have been speaking up on issues of fraud and transparency in digital advertising in recent years, but yesterday Uber took it a step further. The company filed a lawsuit against Dentsu-owned mobile agency Fetch yesterday, alleging that the advertising agency billed Uber for fraudulent ads and seeking at least $40 million in damages. Fetch’s CEO James Connelly responded to the suit today with an emailed statement denying the allegations and saying that the agency would respond robustly “to ensure we set the record straight.”
“We are shocked by Uber’s allegations which are unsubstantiated, completely without merit, and purposefully inflammatory so as to draw attention away from Uber’s unprofessional behavior and failure to pay suppliers,” he said. “It is unfortunate that Uber would misconstrue facts and use an industry-wide issue as a means of avoiding its contractual obligations.”
Connelly added that Fetch had terminated its agreement with Uber “months ago,” after the company had stopped paying invoices for services provided by “over fifty small business suppliers” the agency had relied on to place its mobile ads. He said that Uber raised “unsubstantiated claims relating to ad-fraud” to pay its invoices after months of non payment, adding that Fetch delivered on the strategic goals it had promised Uber and even advised the company on tactics to reduce fraud…. Uber paid Fetch more than $82.5 million for its ad effort between 2015 and the first quarter of 2017, according to court documents filed Monday in the US District Court for the Northern District of California, as reported by the Wall Street Journal. The company has withheld about $7 million in payments to Fetch since “the extent of the fraud” came to light, the complaint said.
My Take: Now this is a switch. Instead of getting sued, Uber is suing somebody else. Without knowing the particulars of this case, Uber’s allegations seem plausible. Click fraud is a huge problem in social media, but proving it in a court of law is another matter.
Readers, what did you think of this week’s round up? Are we really just at the mercy of whatever Uber wants to pay us?
-John @ RSG
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