Uber, the darling of the gig economy, and the model on which many other companies established themselves, has been sued by the Federal Trade Commission for deceptive practices. Oops.
In the settlement with the FTC, Uber has admitted to substantially inflating the earnings possibilities for drivers who go to work for them. According to an FTC press release:
The FTC alleges that Uber claimed on its website that uberX drivers’ annual median income was more than $90,000 in New York and over $74,000 in San Francisco. The FTC alleges, however, that drivers’ annual median income was actually $61,000 in New York and $53,000 in San Francisco. In all, less than 10 percent of all drivers in those cities earned the yearly income Uber touted. The FTC also alleges that Uber made high hourly earnings claims in job listings, including on Craigslist, but that the typical Uber driver failed to earn those advertised hourly amounts in various cities.
Uber has agreed to pay to the FTC a $20 million settlement. In addition Uber is prohibited from making false claims about earning potential. As the press release said:
“…the stipulated order prohibits the company from misrepresenting drivers’ earnings and auto finance and lease terms. The order also bars Uber from making false, misleading, or unsubstantiated representations about drivers’ income; programs offering or advertising vehicles or vehicle financing or leasing; and the terms and conditions of any vehicle financing or leasing.”
This settlement may cost Uber in attracting additional drivers for its company on the gig economy model. It may also accelerate them converting gig drivers to employee status to stem the potential number of lawsuits. The $20 million is going to be used to pay back drivers who were defrauded by the earnings promises.
Additionally this may bring additional scrutiny on other companies who have adopt the Uber style model. They will now be evaluated for the truthfulness of their earnings claims. This may result in more cases being addressed by the FTC and the courts. Only time will tell.