Consumer Federation of California

Uber drivers scored a victory Tuesday when a federal judge ruled that they could move forward with a class-action lawsuit that seeks to designate them as employees, not independent contractors.

U.S. District Judge Edward Chen in San Francisco ruled for the plaintiffs, denying the on-demand transportation company’s motion for a quick judgment and allowing the lawsuit to proceed as a class action.

The decision could have deep implications for Uber and other companies in the fast-growing on-demand economy, in which customers use smartphone apps to order services such as car rides and home delivery of groceries and restaurant food.

Potential profit margins are much higher if Uber drivers or delivery people are considered contractors, because it keeps overhead costs low; responsibility for employment benefits, tax payments, health insurance and work-related expenses lies with the worker.

Uber now stands to lose far more than if the case had proceeded as a suit involving only three plaintiffs. In addition to potentially being on the hook for back wages, sick leave, expenses and benefits, the company could be ordered to pay gratuities owed to thousands of former drivers.

“We’re talking about millions of dollars,” said Lonnie Giamela of labor and employment firm Fisher & Phillips.

And that doesn’t even touch on what a loss would mean for Uber’s independent contractor-reliant business model, which has earned the company a $50-billion valuation.

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Tags: Class Action, Lyft, Sharecropper Economy, Uber