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Uber’s massive miscalculation

Independent contractors are business owners in their own right. Fueled by a healthy “gig economy,” they enjoy the freedom, flexibility and unlimited revenue potential that comes with entrepreneurship. With that albeit risky upside, the downside involves little, if any of the rights usually afforded to hourly and salaried employees.

Thankfully for Uber drivers, strength is in the numbers.

In the shadow of going public, Uber Technologies Inc., are involved in a dispute with their independent contractor drivers over compensation and mileage reimbursement. Anxious to avoid a class action lawsuit that would unite them, Uber’s strategy was to enter legal arbitration that would require individual contractors to each file claims. Uber saw their upside in minimizing legal fees while discouraging individuals from battling a ride-sharing behemoth ready for its Wall Street close-up.

The downside has become something more daunting. More than 60,000 independent drivers responded to Uber’s decision by filing individual arbitration demands. The mistake has created a legal nightmare for Uber with the move potentially costing them both time and money. Experts predict decades of negotiations to the tune of $600 million or more to get through the volume of cases.

Nancy Cremins, general counsel at Globalization Partners in Boston, is one such expert who believes that the sheer volume of legal actions would be virtually impossible to manage. Cremins referred to Uber’s miscalculation as “death by a thousand cuts.”

With their bluff called, Uber’s business model of classifying drivers as independent contractors is at risk of collapsing under the weight of tens of thousands of “cuts” in the form of individual legal actions.