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For-hire drivers gather at a Seattle City Council meeting in December in support of a new law that paves the way for drivers to unionize. (GeekWire File Photo)

The U.S. Chamber of Commerce is suing the City of Seattle over its recently-approved law that would give Uber, Lyft, and other “for hire” drivers the right to unionize.

chamber11The U.S Chamber today filed a lawsuit in the U.S. District Court for the Western District of Washington, challenging a law it says “will burden innovation, increase prices, and reduce quality and services for consumers.”

“This ordinance threatens the ability not just of Seattle, but of every community across the country, to grow with and benefit from our evolving economy,” Amanda Eversole, president of the Chamber’s Center for Advanced Technology & Innovation, said in a statement. “Technology companies are leading the charge when it comes to empowering people with the flexibility and choice that comes with being your own boss, and that is something to be championed, not stifled.”

The legislation, first introduced by Seattle City Councilmember Mike O’Brien, creates a way for drivers to gain benefits typically given to employees, as a way to combat income inequality. The ordinance, which has yet to take effect, was the first of its kind to pass in the nation and the Seattle City Council approved the bill 8-0 in December. Seattle Mayor Ed Murray declined to sign the bill, citing “several flaws” including the burden of administering the law, but noted that it would still become law without his signature.

The Chamber’s lawsuit contends that the ordinance violates federal law and would “result in a balkanized set of labor schemes that would negatively impact the sharing economy and jeopardize the flexible work schedules and earnings opportunities that economy provides to millions of people nationwide.”

“It’s no coincidence that, in the 126 years since the passage of the Sherman Antitrust Act and the 81 years since the passage of the National Labor Relations Act, the unions are only now attempting to impose a local regulatory scheme to organize independent contractors,” Lily Fu Claffee, chief legal officer of the U.S. Chamber, said in a statement. “This has never been tried before, because it is clearly inconsistent with federal antitrust and labor laws.”

You can see the 31-page lawsuit in full here.

Seattle Councilmember Mike O'Brien speaks at a City Council meeting last year. (GeekWire File Photo)
Seattle Councilmember Mike O’Brien speaks at a City Council meeting last year. (GeekWire File Photo)

“In short, Seattle’s Ordinance reflects a broadside attack on the fundamental premises of independent contractor arrangements, as well as the nascent on-demand economy that relies on it. Federal labor and antitrust laws were designed precisely to avoid this result, and to encourage innovation and the free flow of commerce among private service providers across the Nation,” the lawsuit reads.

The lawsuit also states that the ordinance violates Washington’s Consumer Protection Act, in addition to Washington’s Public Records Act.

“If Seattle is permitted to adopt and implement its Ordinance here, then approximately 40,000 other municipalities may attempt to do so as well,” the lawsuit reads. “But permitting thousands of separate and independent collective bargaining regimes for independent contractors would inflict significant costs upon the for-hire transportation sector and, more broadly, undermine the flexibility, efficiency, and choice that accompany independent contractor arrangements.”

In January, the U.S. Chamber — which bills itself as “the world’s largest business organization representing the interests of more than 3 million businesses of all sizes, sectors, and regions” — released a separate statement that challenged the city’s decision and noted that it “violates federal law in at least two ways.” Fu Claffee cited Congressional amendments to the National Labor Relations Act that “expressly excluded independent contractors from collective-bargaining requirements.”

“The City of Seattle — and any state or other municipal government — cannot dictate otherwise,” Claffee said in January. “In addition, it’s antitrust 101 that independent actors cannot conspire with each other to set prices.”

The Chamber also today described the legislation as a “price-fixing ordinance.”

We’ve reached out to O’Brien and Uber for comment, and will update when we hear back. Update: Here’s a statement from an Uber spokesperson:

“The Chamber of Commerce’s challenge to the Seattle ordinance raises serious questions not only about whether the city has run afoul of federal laws, but also about the impact on drivers who rely on ridesharing to earn flexible income.”

When the city council passed this law, it was well aware that litigation from companies like Uber and Lyft, or another party, could be coming. In January, after the Chamber made its statement opposing the legislation, O’Brien told GeekWire that it “doesn’t change our way of thinking.”

On the question of legality, he said, “We did pass legislation that is trying a new approach, and we know in Seattle that when we try new approaches, that means oftentimes we get to work through the courts.” He pointed out that that the city has done that successfully with its minimum wage law.

The Councilmember added that the Chamber’s antitrust argument “are both questions that we spent a lot of time with our inside and outside legal experts working through this fall, and ended up in a place where we felt really good about the legislation and had a unanimous vote coming out of the City Council,” he said.

Photo via uberX.
Photo via uberX.

O’Brien’s unique plan is to let drivers that have a minimum threshold of trips join a “Driver Representative” organization that would then allow them to negotiate pay rates and employment conditions. These organizations would have 120 days to demonstrate that “a majority of drivers for a specific company choose to be represented.” From there, they would be able to participate in collective bargaining conversations on behalf of their drivers.

Uber and Lyft, meanwhile, have consistently opposed the law. Speaking in Seattle this past December before the council approved the bill, Uber strategic policy advisor David Plouffe called the ordinance “puzzling,” and warned that it may cost the city some money.

“I think the ordinance is puzzling because it’s generally believed to be flatly illegal, and I assume the courts will look at that if it were to be successful,” Plouffe said. “My understanding is that a couple councilmembers here also asked the Federal Trade Commission to look at this, as they had some concerns about the anticompetitive behavior that this ordinance might be suggesting.”

Earlier this week, Uber sent a letter to city administrators, offering up “four key principles” the company believes should guide the city in how it enforces the law. Uber is also calling drivers in Seattle, explaining why they should be against unionizing.

Councilmember Mike O’Brien chats with Eastside for Hire Manager Abdul Yusuf (left) and Flat Rate for Hire Vehicle Association leader Henry Yates (second from right) at an event last month in Seattle.
Councilmember Mike O’Brien chats with Eastside for Hire Manager Abdul Yusuf (left) and Flat Rate for Hire Vehicle Association leader Henry Yates (second from right) at an event last month in Seattle.

Last month, O’Brien spoke at a Bia Kelsey conference about the on-demand industry and defended the law after a few audience members voiced concerns. He noted that drivers are being paid for less than in years past — uberX’s per-mile rates have dropped 50 percent since uberX launched in Seattle three years ago — and wants to make sure they have a voice.

“How do we allow the workers in this industry to have some voice and leverage?” O’Brien said at the event. “The workers benefit when the market is expanding, when they have more customers — how can they share in the prosperity with Uber? Instead, what we have now is Uber valued at $63 billion and drivers that work full time making less than $3 an hour after deducting expenses. The playing field is so out of balance; the power dynamic is so out of balance.”

John Kirkwood, a law professor at Seattle University who also spoke at the event, noted “significant” problems with the legislation related to anti-trust issues.

“The state of Washington has allowed the City of Seattle to regulate the product market here for taxi services,” Kirkwood said. “But there’s no clear intent to displace competition in the labor market. The state of Washington has not clearly authorized Seattle to allow collective bargaining in the labor market.”

Here’s the full release from the Chamber:

U.S. Chamber Files Lawsuit
Challenging Seattle’s Drivers’ Union Ordinance

Argues Unlawful Action will Stifle Economic Growth, Innovation

WASHINGTON, D.C. — The U.S. Chamber of Commerce today filed a lawsuit in the U.S. District Court for the Western District of Washington to challenge a Seattle ordinance that authorizes union organizing of for-hire drivers working as independent contractors, highlighting that the ordinance will burden innovation, increase prices, and reduce quality and services for consumers.

The Chamber’s complaint notes that in addition to being in violation of federal law, implementation of the ordinance would result in a balkanized set of labor schemes that would negatively impact the sharing economy and jeopardize the flexible work schedules and earnings opportunities that economy provides to millions of people nationwide.

“Technology continues to transform the way we do business. Seattle, as hub for innovation, has been at the forefront of that change and has benefited from the job creation, economic growth, and increased tax revenue the technology sector spurs,” said Amanda Eversole, president of the Chamber’s Center for Advanced Technology & Innovation. “This ordinance threatens the ability not just of Seattle, but of every community across the country, to grow with and benefit from our evolving economy. Technology companies are leading the charge when it comes to empowering people with the flexibility and choice that comes with being your own boss, and that is something to be championed, not stifled.”

The Teamsters-backed ordinance would require taxi, for-hire vehicle, and transportation network companies to collectively bargain with designated unions representing independent drivers, and impose contract terms on those drivers and companies who do not reach an agreement.

“It’s no coincidence that, in the 126 years since the passage of the Sherman Antitrust Act and the 81 years since the passage of the National Labor Relations Act, the unions are only now attempting to impose a local regulatory scheme to organize independent contractors,” said Lily Fu Claffee, chief legal officer of the U.S. Chamber. “This has never been tried before, because it is clearly inconsistent with federal antitrust and labor laws.”

The U.S. Chamber, which is being represented by Jones Day, argues in its complaint that:

The ability of individuals to go into business for themselves has long been an important engine of the American economy. And the power of that engine has only grown as technology has transformed the way Americans do business. One of the most recent innovations creation of the so-called “on demand” economy, which uses technology to connect individual service providers with would-be customers. This innovation has dramatically increased the flexibility of independent contractors to conduct business where, when, and as much or as little as they choose in a variety of business enterprises—transporting passengers, performing delivery services, providing lodging, or other work—for as many different entities or customers as they wish. The City of Seattle’s Ordinance that would threaten the viability of the on demand economy and put at risk the freedom, flexibility, and choice inherent in independent contractor arrangements.

Collective bargaining by independent contractors over the price and terms of a service is per se illegal under § 1 of the Sherman Act. The Ordinance unlawfully authorizes for-hire drivers to engage in this per se illegal concerted action by forming a cartel, speaking as a single unit through an exclusive representative, and engaging in horizontal fixing of prices and contractual terms.

Congress expressly left independent contractors unregulated and excluded them from collective-bargaining requirements. This provision reflects Congress’s intent to ensure that independent contractors remain regulated by “the free play of economic forces,” or market forces, rather than by city ordinances imposing collective-bargaining schemes.

There are nearly 40,000 general purpose local governments in the United States. If Seattle is permitted to adopt its own set of regulations here, then 40,000 other municipalities may attempt to do so as well. But permitting literally thousands of separate and independent regulatory regimes would cripple the for-hire driver industry and, more broadly, the “on demand” economy writ large. Federal labor and antitrust laws were designed precisely to avoid this result, and to encourage the free flow of commerce among private service providers across the Nation.

“In amendments to the National Labor Relations Act, Congress expressly excluded independent contractors from collective-bargaining requirements. The City of Seattle—or any state or other municipal government—cannot dictate otherwise,” said Randel Johnson, senior vice president of Labor, Immigration, and Employee Benefits for the U.S. Chamber.

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