US judge OKs $20M deal between Uber and its drivers

SAN FRANCISCO -- Uber Technologies Inc. closed a long-running chapter on a tumultuous legal saga over the ride-hailing service's classification of drivers, a federal judge ruled Thursday.

Although questions of whether Uber is compliant with labor laws remain unanswered, U.S. District Judge Edward Chen said a $20 million settlement to nearly 16,000 drivers is a "fair and adequate resolution in view of the considerations and various risks."

The approval comes as hundreds of Uber and Lyft drivers rally in San Francisco in support of a state bill that would make it more difficult for companies to classify workers as independent contractors rather than employees.

The bill, AB5, stems from a California Supreme Court decision in favor of workers seeking full employment protections, such as minimum wage, worker's compensation and paid sick leave.

In addition to employee classification, the case is packed with legal issues lawmakers have yet to address, including the enforceability of allegedly "unconscionable" arbitration agreements.

"The unfairness of policies that continue to exist, matters which are not addressed or disposed of by this litigation, this [settlement] leaves those questions to another case or to another forum," Chen said.

Plaintiffs filed the class action lawsuit in 2013, alleging Uber misclassified drivers because it exercised more than sufficient oversight and supervision of their services. Uber maintained it properly identifies workers as independent contractors. O'Connor et al. v. Uber Techonologies, Inc., 13-CV03826 (N.D. Cal., filed Aug. 13, 2013).

After the judge certified a class of as many as 385,000 drivers, the parties reached a $84 million settlement in 2016. The resolution, which included minor changes to the company's deactivation policy to address complaints it kicked drivers off the platform without explanation and clarification to its tipping policy, would have left the drivers as independent contractors.

But Chen denied the proposed settlement, finding it "not fair, adequate, and reasonable" in light of plaintiffs' attorneys estimating their damages at more than $850 million.

As plaintiffs continued to string together a series of wins against their arbitration deals, which were ruled unconscionable by Chen, Uber scored a momentous victory when the 9th U.S. Circuit Court of Appeal overturned the judge's decision not to enforce the contract provisions. The class shrunk to roughly 15,710 members.

Plaintiffs' attorney Shannon Liss-Riordan said she anticipated the appellate reversal in light of the U.S. Supreme Court's decision in a relevant case, which upheld class action waivers and reinforced employers' ability to compel arbitration. Epic Systems Corp. v. Lewis, 138 S. Ct. 1612, 1623 (2018).

Before the high court's 2018 ruling, the National Labor Relations Board regularly struck down such waivers as unconscionable, as Chen did.

The $20 million settlement was agreed upon in March after both sides re-evaluated risks with taking their claims to trial, following the U.S. and California Supreme Court decisions and uncertainty around AB5.

While the Dynamex decision bolsters the plaintiffs' case, Uber and Lyft are fiercely advocating for a carveout in AB5 to exempt them from having to classify drivers as employees. There is also the possibility the ruling does not apply retroactively. Dynamex Operations West, Inc. v. Superior Court, 2018 DJDAR 3856.

"Particularly in view of the risks of going forward (including the risk that the landmark Dynamex ruling is now at risk of being curtailed legislatively, as well as the ongoing uncertainty regarding its retroactive application), the proposed settlement provides a tremendous benefit to the class," Chen wrote.

Liss-Riordan defended the settlement by arguing drivers risked receiving nothing.

While Uber paid a fraction of what it would have if it lost at trial, adverse rulings and outcomes that impacted this case may have aggravated driver frustrations that have compelled state and federal lawmakers to act, according to labor attorney Ryan Wu.

"Through the Supreme Court's arbitration jurisprudence, we're really seeing the effects of that - workers getting screwed," he said. "I can see how that exacerbates frustrations."

Wu also noted the landscape to challenge alleged employee misclassification is getting increasingly complicated given state law changing in favor of gig economy workers while changes in federal law "continues going against them."

"Technology is driving changes in the structure of the economy, including relationships between employer and employee," he said. "The law is trying to catch up."