In a victory for Uber, a federal appeals court said Wednesday drivers for the most part have to resolve claims against the company individually and not through a class action lawsuit.
The ruling by the 9th U.S. Circuit Court of Appeals came in a lawsuit by Uber drivers over the company’s background checks, but it also affects drivers in a separate suit who accuse the ride-hailing service of exploiting them by treating them as independent contractors instead of employees. The arbitration clause the ruling upheld also applies to the vast majority of the roughly 380,000 drivers in that lawsuit.
Those drivers will now have less leverage against Uber, as they pursue claims individually through arbitration instead of as a group through a class action suit.
“Today’s decision is not good for the class,” said Shannon Liss-Riordan, an attorney for drivers in the lawsuit over Uber’s classification of drivers as independent contractors.
Liss-Riordan said only about 6,000 drivers that the lawsuit represents are not covered by the arbitration clause the 9th Circuit upheld.
Ted Boutrous, Uber’s attorney, applauded the 9th Circuit ruling, saying “arbitration is a fair, speedy and less costly alternative to class-action litigation.”
San Francisco-based Uber has fought efforts to classify its drivers as employees. The change would give the drivers more rights and benefits, but raise Uber’s operating expenses significantly and go against its business model and identity, potentially undercutting its plans to eventually sell its stock in an initial public offering.
Uber and the drivers in the independent contractor suit reached a $100 million settlement, but that deal was rejected last month by a federal judge who said it wasn’t fair.
The agreement would have required Uber to pay at least $84 million to drivers in California and Massachusetts who had been picking up riders who requested them through the company’s service dating back to August 2009. Uber would have paid another $16 million to the drivers if the company’s market value increased by 1.5 times within the first year of its IPO.
But U.S. District Court Judge Edward Chen was troubled that the settlement also would have prevented the drivers from pursuing claims on a variety of other employment issues that could have generated another $1 billion in a trial verdict in their favor. With those potential liabilities, the proposed settlement would be paying the drivers less than 5 percent of what they could win in a trial — a sum that Chen concluded was “not fair, adequate or reasonable.”