9th Circuit unravels class of Uber drivers suing over misclassification

The 9th U.S. Circuit Court of Appeals has decertified a class of thousands of Uber drivers who claim they are misclassified as contractors, effectively ending a lawsuit that turned on the issue of arbitration.

In its ruling Tuesday, the appellate panel reversed U.S. District Judge Edward M. Chen's order denying Uber's motion to compel arbitration.

The class of drivers with arbitration agreements had previously strung together wins against their arbitration deals, which were ruled unconscionable in the lower court, allowing the class to be certified and initiate multiple putative actions rooted in alleged misclassification.

However, in another recent 9th Circuit decision in Mohamed v. Uber Technologies, the same panel ruled that district courts should not even decide enforceability of these agreements; under the contract, that power is reserved for the arbitrator.

The case's momentum was further jeopardized by the U.S. Supreme Court's decision in Epic Systems Corp. v. Lewis, 2018 DJDAR 4705 (May 21, 2018), which upheld class action waivers and reinforced employers' ability to compel one-on-one arbitration. Before Epic Systems, the National Labor Relations Board had an established practice of striking down such waivers as violations of the National Labor Relations Act.

That, along with nationwide circuit splits on their enforceability, made arbitration agreements containing them, like Uber's, vulnerable to legal attack.

Per the Supreme Court's decision, such waivers are not a violation of the labor relations act, and are enforceable under the plain language of the Federal Arbitration Act, which states courts must "enforce agreements to arbitrate according to their terms."

In light of Epic Systems and Mohamed, the 9th Circuit reversed the lower court rulings in favor of the drivers, undoing all their previous wins and sundering the class. O'Connor v. Uber Technologies, Inc., 2018 DJDAR 9663 (9th Cir., Sept. 25, 2018).

"The district court's denial of Uber's motions to compel arbitration [...] must be reversed, based on Mohamed. Because the arbitration agreements are enforceable, the district court's class certification orders in O'Connor must also be reversed," wrote Judge Richard R. Clifton.

The unanimous panel also included Judges Richard C. Tallman and Sandra S. Ikuta.

""We are very pleased with the 9th Circuit's order reversing class certification," said Theodore J. Boutrous Jr. of Gibson, Dunn & Crutcher LLP, who argued for Uber.

According to Shannon Liss-Riordan of Lichten & Liss-Riordan PC, who represented the drivers, the ruling was not a surprise after Epic Systems.

"The 9th Circuit just reversed the class certification order in the O'Connor v. Uber case, on the ground that Uber's arbitration clause prohibits class actions. We have, unfortunately, been long expecting this," said Liss-Riordan.

"This panel of the 9th Circuit had previously ruled against Uber drivers, and the U.S. Supreme Court's decision in Epic Systems earlier this year removed one of our remaining arguments for why Uber should not be able to use its arbitration clause to avoid certification of a class for its widespread labor violations," she said.

Ryan Wu of Capstone Law APC said that the decision is not surprising but could cause Uber problems.

"Uber should be careful what it wishes for. Since the class was previously certified, it wouldn't surprise me if Ms. Liss-Riordan has already contacted former class members about pursuing their misclassification claims via individual arbitration," he said.

According to Liss-Riordan, she is doing just that while considering an en banc appeal.

"Thousands of drivers have already signed up for individual arbitration," she said. "If Uber wants to resolve these disputes one by one, we are ready to do that -- one by one."

"It might end up being a bigger headache for Uber to have to defend its practices in thousands of arbitrations rather than a single class action," Wu said.

Charles O. Thompson of Polsinelli LLP, who represents employers, called Tuesday's decision "the break Uber has been looking for" in its classification struggles.

"I wouldn't rule out the possibility of a request by the plaintiffs to go to an 11-judge panel, but the court was pretty clear on its rationale and I doubt a different result will be achieved," he said. "Clearly, the Epic decision may have been a 'game changer' here on the arbitration issue, which led to the courts conclusion to reverse the lower court's certification."

John K. Skousen of Fisher & Phillips LLP said, "It's actually catching up with the law, allowing the arbitrators to get the issues."

According to Glenn Danas of Robins Kaplan LLP, the plaintiffs could seek to recertify a smaller class of drivers who opted out of arbitration agreements, and the rest could hit the company hard with arbitration costs.

"On remand, the plaintiffs will have a good argument to exclude those who signed agreements, and could go forward with the many thousands who opted out or never signed agreements," he said. "Uber has a substantial amount of cash, but those arbitration costs could really stack up."