(CN) - The maker of a taxi-service app for smartphones must face claims that it charges a 20 percent gratuity that is not fully passed on to cab companies and drivers, a federal judge ruled.
Taxi drivers Douglas O'Connor and Thomas Colopy filed a putative class action accusing Uber Technologies of falsely advertising that the tip is included in the fare when the full amount is not passed along to drivers.
According to the complaint, the San Francisco startup sells a smartphone app that enables customers to hail a driver "on demand."
Though Uber claims in advertisements that there is no need to tip the driver, drivers do not receive the full gratuity, the plaintiffs say.
In some cases, Uber earmarks 20 percent of the fare as a driver tip, but other times it does not say how much the driver will receive, the complaint states.
The Californian plaintiffs seek to represent Uber drivers in all states but Massachusetts.
Another class filed
similar claims in Chicago last October, accusing Uber of "false price advertising at its most pernicious."
The Californian drivers further claim that although Uber's licensing agreement clearly states which fares will be collected and disbursed to drivers after Uber extracts its fee, it does not mention the handling of gratuities.
The agreement also misclassifies drivers as "independent contractors" instead of employees, according to the complaint. Because their services are "fully integrated" into Uber's business, drivers say, they should be reimbursed for their job-related expenses under the California Labor Code.
Uber moved to dismiss all claims, the non-Californian class members, and the individually named defendants, Uber President Travis Kalanick and Vice President Ryan Graves.
U.S. District Judge Edward Chen in San Francisco partially denied the motion Thursday.
He said the complaint plausibly alleges that an employment relationship exists.
"To be sure, a number of factors weigh against finding an employment relationship, including the fact that the drivers supply the instrumentalities of work - their vehicles - and are paid by the job," Chen wrote. "Perhaps potentially even more persuasive, counsel for defendants represented at oral argument that Uber has no control over the drivers' hours, which geographic area they target for pickups, or even whether they choose to accept a passenger's request for a ride. If this proves to be the case, plaintiffs' assertion of an employment relationship would appear to be problematic. Nonetheless, no such allegations are contained in the complaint, and based on the allegations of the complaint, plaintiffs have stated a plausible claim for purposes of the motion to dismiss."
The judge rejected Uber's claim that the included tip constitutes a mandatory "service charge" as defined by the Labor Code.
"Even if Uber did not subjectively intend for the gratuity to benefit the drivers, the company 'must have understood that the promisee [passengers] had such intent,' and the 'objectively reasonable expectation of the promisee [passenger]' would be that Uber intended to give the gratuity to the drivers," Chen wrote. (Brackets in original.)
He refused to dismiss the non-Californian class members, finding that applying California law to them would not violate the U.S. Constitution's dormant commerce clause.
However, Chen agreed to dismiss Kalanick and Graves as defendants, and to partially dismiss the claims for breach of implied-in-fact contract, tortious interference and unlawful business practices.