Uber's New York competitor sued over driver equity scheme
Juno's taxi drivers complain of bait-and-switch
Drivers of Uber-competitor Juno have taken out a class action lawsuit against the company, claiming that it ripped them off with an equity ownership scheme that was designed to attract them to the service.
When it launched in early 2016, the New York City company came up with a novel way to attract drivers to its service – offer them equity in the firm itself. To contrast itself with Uber and Lyft, Juno pushed itself as a "pro-driver" service that would be increasingly owned by the drivers themselves. The more someone drove for the company, the more shares they would amass.
If you worked more than 120 hours per month for the company, the driver version of its app would inform you of the additional shares you had acquired. The company said that by 2026, it expected to be majority owned by the drivers themselves.
According to the lawsuit [PDF], the approach was very successful: a "modern-day startup fairy tale" that enabled Juno to "successfully penetrate the hyper-competitive and uber-profitable mobile taxi market in New York City."
Just over a year after launch, the company sold itself for $200m. But the drivers did not get the payday they were expecting. On selling, Juno and its parent company Vulcan Cars terminated the share scheme and informed drivers that the shares would subsequently become worthless. In their place, it offered cash payouts for the shares they had.
"The SEC [Securities and Exchange Commission] had asked Juno to change how it was implementing the program going forward, specifically registering it or using an exemption from registration in a different manner," the company said in an email sent to all drivers. "Given these discussions with the SEC, Juno was considering, among other things, whether the RSUs previously granted were void under the terms of the RSU program."
Cash in hand
Many drivers had taken the offer of $100 in Juno stock when they signed up for the service, in place of a $100 signing fee in cash. Despite the company's huge increase in value, drivers were only offered the original $100 valuation. And drivers who had spent hundreds of hours driving for the company – and so accumulated more shares – were offered similar small amounts up to around $250. The drivers' share in the company worked out at less than 1.5 per cent of the company's total value.
The small print in the share agreement said that the shares would vest only if they drove regularly for two-and-a-half years. But since Juno sold itself after roughly a year, none of the shares had legal status.
The drivers argue this amounted to a "bait and switch" in which they were "promised equity and then paid off at pennies on the dollar when all other shareholders/investors made out handsomely." They are suing Juno for false advertising, breach of contract and securities fraud.
Three drivers are named in the lawsuit: Mohammad Islam was given $226 for his 12,756 restricted stock units (RSUs); Mohammed Razzak received $130 for his 7,350 RSUs; and the third, Mohammad Siddique, has yet to receive Juno's evaluation of what his shares are worth.
"Juno purposefully misrepresented the terms and conditions of its RSU program to the plaintiffs and the putative class members for the purpose of inducing them to leave Uber and Lyft and join Juno," the lawsuit argues, adding that there were also terms and conditions that they were not made aware of.
"Juno had no intention of ever providing the plaintiffs and putative class members with a 50 per cent stake in Juno, as it advertised and claimed," it states.
The reality is that Juno was not the only ride-hailing company to consider granting its drivers shares in the company as a way of getting a limited pool of people to work for them in a competitive market.
Uber had considered a similar scheme but decided not to go ahead with it when it decided that would probably break securities laws. There is also a chance that drivers could have faced a tax bill for their shares if they were retained.
The drivers are suing for $10m.
We asked Juno about the lawsuit. They told us: "While we do not comment on pending litigation, we intend to vigorously defend against the allegations in court." ®