Are Uber's aggressive recruitment tactics legal?

Uber has come under fire this week for employing controversial recruitment practices against rival Lyft, but beyond a question of ethics some experts say the revelations could potentially put the company in legal hot water.

Uber hires teams of independent contractors that it calls “brand ambassadors” and arms them with burner phones and credit cards which they use to hail Lyft rides in cities around the U.S., according to a report this week in The Verge.

The contractors use those rides as recruitment sessions for Lyft drivers. Some of Uber’s methods, like its US$500 driver incentive program, were already known. But the Verge report, based partly on internal documents, shows just how far Uber been going to poach Lyft’s drivers.

Lyft claimed earlier this month that Uber employees have ordered and cancelled thousands of Lyft rides to undermine its business. The Verge report now suggests—though it doesn’t appear to have conclusive proof—that at least some of those rides are being cancelled as a result of Uber’s recruitment tactics.

Uber, not surprisingly, is on the defensive. It had already shot back that Lyft employees also routinely cancel Uber rides. And this week it published a blog post when the Verge story appeared in which it acknowledges trying to recruit Lyft drivers. “Marketing 101: We cant successfully recruit drivers without talking to them,” it says.

But Uber strongly denies that it ever “intentionally” cancels Lyft rides.

It’s not hard to imagine, however, that Uber’s recruitment tactics could lead to rides being cancelled, if only inadvertently, such as when one of its contractors hails a Lyft ride and gets a driver they have already tried to recruit before. In one email to contractors obtained by The Verge, they are instructed to wait a while before requesting another ride, “so you don’t have to cancel on the same driver if you get them again.”

Some don’t see the recruitment efforts as a big deal. “Competition benefits drivers and riders,” said Ali Rowghani, former chief operating officer at Twitter, in a tweet. “I have no problem with what Uber and [CEO Travis Kalanick] are doing to recruit drivers and grow the business.”

But others wonder if the practices are hurting Lyft’s ability to operate, and if they might cross a line and break the law.

If Uber’s contractors are indeed cancelling rides, that could potentially violate federal laws governing anti-competitive business practices, said Mark Patterson, a law professor at Fordham University who studies antitrust law, competition and Internet law. The Sherman Antitrust Act would likely be the applicable law, he said.

“The poaching of drivers would probably not be the problem,” he said. “The problem would be collateral damage to Lyft and its customers.”

A former antitrust official at the U.S. Federal Trade Commission agreed. If Uber’s tactics involve canceling rides, impairing Lyft’s ability to compete, that could be grounds for investigation by federal regulators or state attorneys general, said the former FTC official, who spoke on condition of anonymity.

However, the experts both said that Uber would need to be considered a dominant player in the market for those laws to apply, and that depends on how the market is defined.

If the “market” includes traditional taxi cabs in addition to ride-sharing companies, then Uber would be considered far less dominant. But if the market is considered to be ride-sharing firms only, the situation could be different.

A spokesman for the U.S. Federal Trade Commission, one of the agencies that enforces competition law, declined to comment on the Verge report or say whether the FTC would investigate the claims.

But even without market dominance, Patterson said, Uber might still be liable under state business tort laws if it was found to have canceled rides.

Uber’s own view of the market apparently does include traditional taxis. The company recently hired David Plouffe, a former campaign manager for President Obama, as its senior vice president of policy and strategy. Uber CEO Kalanick, in announcing the hire, identified Uber’s opponent as the “Big Taxi cartel.”

Lyft did not respond to a request for comment on this report, and Uber pointed to its blog post from Tuesday.