New and Innovative Companies, Same Old Legal Problems

The last decade has been the decade of the startups. In office shares, innovation hubs, and garages across the countries, businesses have been founded, have grown, and have changed the way millions of people live their lives – and all while striving not to be like other businesses. This is startup culture - culture defined more by values, innovation, and fast-changing priorities than more traditional corporate understandings of profit and growth.

Defining what “startup” means is tricky. Warby cofounder Neil Blumenthal suggests that “A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed,” while Homejoy CEO Adora Cheung put it this way:

“Startup is a state of mind. It’s when people join your company and are still making the explicit decision to forgo stability in exchange for the promise of tremendous growth and the excitement of making immediate impact.”

Whatever the answer, one thing is clear: industry disruptors such as Uber, Netflix, and Airbnb are here to stay, and there’s something different about them.

There’s also something very similar about them. For all their innovation, all their championing of employees’ rights, the world’s biggest startups are still falling short when it comes to fairly traditional legal disputes. Whether it’s unpaid overtime, employee misclassification, or alleged discrimination, plenty of lawsuits have been filed against the world’s “hippest” businesses.

Uber

Founded: 2009, San Francisco, CA

Businesses: App-based ride sharing

Estimated Value: c. $40 billion

It seems barely a week goes by without news of an Uber class action. In the last few months, we’ve reported on a data breach lawsuit filed in California by Uber drivers whose personal information was allegedly endangered, worldwide protests by taxi companies about Uber’s lack of regulation, and a lawsuit filed by drivers who claimed they were misclassified as contractors so the company could avoid paying them benefits. Employee misclassification is a depressingly common problem and normally means a company is avoiding overtime laws by classing certain workers as exempt. In many cases, this is done by classifying workers as assistant managers, although Uber is accused of hiring drivers on a freelance basis despite, allegedly, treating them as full time employees.

The company has also been hit with discrimination lawsuits under the Americans with Disabilities Act after blind passengers claimed they were turned down by Uber drivers when traveling with service dogs.

Netflix

Founded: 1997, Scotts Valley, CA

Businesses: On-demand Internet streaming and DVD rental

Value: c. $30 billion

Few things sum up modern innovation better than Netflix. As Blockbuster stores across the country closed their doors, the online-streaming service went from strength to strength, and its leap creating its own original shows has forever changed the way we interact with media. None of that, of course, stops the company from facing fairly typical lawsuits. In 2012, Netflix paid out $9 million to settle a consumer privacy lawsuit over the way the company retained records after customers cancelled their subscription. The suit was filed in San Francisco and, although Netflix admitted no wrongdoing, the settlement brought an end to claims the company violated the Video Privacy Protection Act – something Netflix has lobbied Congress to change.

Discrimination lawsuits have also targeted Netflix – again under the Americans with Disabilities Act, and this time over the company’s failure to close caption its full range of streamed movies and TV shows. In a demonstration of how new companies are changing the way laws are implemented, though, a federal appeals court ruled in April 2015 that Netflix wasn’t covered by disability laws because the company Is “not connected to any actual physical place.” Could this be a sign of ways startups are changing the way companies do business? If it means a weakening of discrimination laws, we’ll have to hope not.

Airbnb

Founded: 2008, San Francisco, CA

Businesses: Private lodging and room rentals

Value: c. $20billion

Airbnb has to be one of the most disruptive companies of the last few years. The idea is simple: through its website and app, Airbnb provides a safe and secure platform for people with spare rooms and houses to connect with visitors and travelers looking to avoid the higher costs of hotels. Lodgers pay by the day, people with an empty room get a steady stream of cash, and – ideally - everybody’s happy.

Except, of course, hotels themselves, which have filed lawsuits across the globe arguing that Airbnb is operating illegally by sidestepping hotel taxes and regulations. It’s a similar story to taxi-driver protests against Uber, and demonstrates how so many up-and-coming companies are facing resistance from established industries. In New York City particularly, Airbnb hosts have found themselves in trouble under city laws that prohibit subletting an apartment for less than a month. The company has been vocal in its opposition to these laws, stating that:

“Where needed, we will continue to advocate for changes that will allow regular people to rent out their own homes.”

Still, Airbnb has faced other lawsuits. In September 2014, more than twenty people sued the company for breach of privacy after Airbnb released user data as part of an investigation into New York City housing law violations. In the suit, the group of apartment owners argued that Airbnb should not be able to share their details with state attorney general Eric Schneiderman without their consent.

It’s good for new companies to push the limits of the industries in which they work; it’s also good for consumers and customers to know their rights and be willing to enforce existing laws. Startups have certainly been good at changing how business is done – now, as the companies grow, let’s hope they can avoid operating in ways that lead to lawsuits from the very customers the companies are hoping to serve.