Uber has settled a class action lawsuit for $270 million – what was it accused of?
- Written by: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
Who’d want to go back to the days before Uber? The days in which you could never be certain you could get a taxi, the days of long wait times trying to order one on the phone, and the days in which you would never know for sure how your driver would treat you.
So much has Uber improved the experience of getting a ride (young people rely on it in a way their parents were never able to rely on taxis) that it might seem incomprehensible Uber has just agreed to pay almost A$272 million to stop a class action against it going to court.
The $271.8 million settlement is the fifth-largest in Australia, eclipsed only by two for Victoria’s 2009 Black Saturday bushfires, one for Queeensland’s 2011 floods and one for Johnson & Johnson for defective pelvic mesh implants.
So what exactly did Uber do wrong – or at least be so unwilling to defend it was prepared to pay a quarter of a billion dollars not to have aired in court?
The statement of claim presented on behalf of 8,000 taxi drivers and licence holders to the Supreme Court of Victoria paints a picture of an organisation prepared to break the law in order to build a large base of customers it could use to lobby to change the law to make what it had been doing legal.
‘Greyballing’ and ghost cars
The statement of claim points to internal Uber documents that indicate Uber knew in advance of its 2014 launch that its so-called UberX drivers were not licensed to operate commercial passenger vehicles, and that the fines were small.
Its aim was to quickly get to 2,000 trips per week in both Melbourne and Sydney, to ensure it had “as many people as possible to support UberX leading up to what will inevitably be a regulatory fight in both cities”.
Uber told drivers it would pay their fines, and in Victoria paid $1,732 at a time.
The class action said where inspectors tried to collect evidence, Uber engaged in a practice known as “greyballing” in which the apps of selected users get shown a fake view of ghost cars that won’t stop for them.
The claim said Uber also used “blackout geofences” that made it impossible to hire Ubers near the buildings used by enforcement officers and regulators.
Case settled at the last moment
By settling just before the case went to court, Uber managed to avoid these claims being tested, and also managed to avoid the court airing the trove of documents leaked two years ago in which one international Uber executive joked he and his colleagues had become “pirates” and another conceded: “we’re just f***ing illegal.”
Uber succeeded in getting each state’s laws changed, at a cost of devaluing to near zero taxi licences reported to have been worth as much as $500,000 each.
But in its defence (and I may as well defend Uber because it decided not to in court) most taxi drivers never paid anything like $500,000.
And taxis provided a pretty poor service. That’s because the number in each state was limited, which helped ensure drivers had work, but worked against customers in two ways – it ensured there weren’t enough taxis available at busy times, and by pushing up the price of licences it pushed up the price of fares.
Taxis served cities poorly
In a landmark 2012 report, Customers First, two years before the arrival of Uber, former competition chief Allan Fels recommended Victoria issue licences without limit, charging a simple fee of about $20,000 per year for anyone who wanted one.
It’s this recommendation, adopted by Victoria, and publicised in other Australian states, that began devaluing licences before the arrival of Uber.
And the Fels report found most of the owners of licences weren’t drivers.
Most were passive investors, some of whom had done well by punting that the value of their licences would rise, and all of whom should have taken into account the possibility the value could fall.
Uber has gone mainstream
Now that Uber has won the right to do what was illegal (and settled a class action that would have exposed how it did it), it has lifted its prices to something closer to taxi fares and allowed customers to book taxis from its platform.
It has become mainstream in other ways. In Australia, it has entered into an agreement with the Transport Workers’ Union on employment, and in the US it wants to work with transport authorities to replace lightly used bus services.
The path Uber has forged – becoming an outlaw, building public support for a change in the law, then becoming entrenched – has become something of a model for new firms in all sorts of other industries, from online gambling, to cryptocurrency trading to footpath scooters.
Uber has shown it works. In this case, the class action has shown that ultimately there can be a cost, but it took a long time and it wasn’t at all certain until the last moment that Uber would buckle.
Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
