A federal judge in San Francisco has granted class-action status to a lawsuit brought by three Uber drivers against the on-demand ride company.

The decision issued today by US District Judge Edward Chen means as many as 160,000 Uber drivers in California could join the case seeking mileage and tip reimbursement from the company, presently valued at $51 billion. The drivers can now collectively challenge the company on the main issue of worker misclassification—whether drivers should actually be considered employees of Uber under the law rather than independent contractors.

The decision applies to all UberBlack, UberX, and UberSUV drivers who have driven for Uber in the state of California at any time since August 2009. However, it excluded Uber drivers who work for a third-party company and more recent drivers who are bound by Uber’s 2014 arbitration clause. For now, Chen also did not grant class-certification for related expenses, including gas and vehicle maintenance.

"This decision is a major victory for Uber drivers," says Shannon Liss-Riordan, the Boston lawyer who is representing the Uber drivers in the case.

"It will allow thousands of Uber drivers to participate in this case to challenge their misclassification as independent contractors, as well as to attempt to recover the tips that Uber advertised to customers are included in the fare, but are not in fact distributed to the drivers."

In arguing against class-action status, Uber tried to show in court that the idea of a typical Uber driver was a false notion, meaning that no individual plaintiffs could truly represent the interests of all drivers.

"We are likely to pursue an appeal of this decision because it is based on several key legal errors," says attorney Ted Boutrous of Gibson Dunn, the firm defending Uber in the case.

"The mountain of evidence we submitted to the court—including the declarations of over 400 drivers from across California—demonstrates that two plaintiffs do not and cannot represent the interests of the thousands of other drivers who value the complete flexibility and autonomy they enjoy as independent contractors."

The Future of On-Demand

Judge Chen's ruling comes as the debate around how to properly classify workers for on-demand companies is heating up. As startups like Uber and Instacart have gone mainstream, so have criticisms of the so-called 1099 economy. These startups often employ freelance contractors, a classification the companies contend is desirable because the work is more flexible than a regular 9-to-5 job. Some critics are calling for broader protections for these workers, who do not receive benefits like Social Security, Medicare, and workers’ compensation and cannot unionize. Others complain that classifying workers as contractors allows companies like Uber to save up to 30 percent of payroll tax costs, which gives them an unfair competitive advantage.

Liss-Riordan has filed similar cases against Lyft, Caviar, Postmates, and Homejoy—the latter of which blamed labor lawsuits as a major factor in deciding to shut down. Some companies, including Instacart, Luxe, Shyp, and Sprig have announced plans to convert some or all employees to part- or full-time status.

Of all the current suits, the case against Uber has progressed the farthest, and given Uber's size and dominance of the market, is considered the true test of the on-demand economy's future. Already Uber is facing down a finding from the California Labor Commission that a San Francisco-based Uber driver should be considered an employee and should receive compensation for mileage and other expenses. That decision, which Uber is appealing, does not carry the force of judicial precedent. But this suit could—and if it goes to a jury trial, could force changes to the on-demand economy's basic business model.