Labor Commissioner objects to deal between Uber and class of drivers

The state Labor Commissioner's office was one of the parties that objected to a $10.8 million PAGA settlement struck between Uber and a class of drivers at a hearing Tuesday, when an attorney for the state agency argued "there is no rational relationship between" the Uber drivers' "strong claims" of misclassification and the "very weak" settlement.

But the attorneys who brokered the agreement said the settlement amount was notably higher than what Uber had agreed to pay in earlier PAGA cases. They also argued the passage of Proposition 22, which upheld Uber's longstanding position that its drivers are not employees but rather independent contractors, means Uber is now "in complete compliance with the law" -- and suggested the plaintiffs and the state may be entitled to nothing at all.

The state agency did not attend Tuesday's hearing to comment on the merits of the case -- which is not especially distinct from the many other misclassification PAGA actions that have been filed against Uber in recent years -- so much as to protest the conduct it alleges both Uber and the plaintiffs engaged in to reach that $10.8 million figure.

In a brief filed last fall, months after the parties in the case submitted their settlement agreement to San Francisco Superior Court Judge Andrew Y.S. Cheng, the state agency opposed the settlement on the grounds that it looked like a "reverse auction." When multiple plaintiffs' attorneys file overlapping PAGA claims but fail to coordinate with each other, the state agency explained, judgment entered on any one of the claims could wipe out the rest. The plaintiffs' attorneys who secure this first judgment are entitled to the attorneys fees -- giving them incentive to broker a less-than-ideal settlement amount with the defendant employer. Meanwhile, "defendant employers are able to choose among competing plaintiffs and seek settlement for the lowest amount possible."

According to the Labor Commissioner's office, the proposed settlement between Uber and its drivers "should be carefully scrutinized because there are signs that it is designed to extinguish claims brought by others against defendants, and not to provide genuine and meaningful relief." Tabola v. Uber, CGC16550992 (S.F. Super. Ct., filed March 16, 2016).

The state agency was not the first to raise suspicions about the parties' settlement in Tabola. Shortly after the settlement agreement was submitted for court approval, attorneys representing another plaintiff in a similar case, Gregg v. Uber, filed their own opposition to the settlement, alleging the Tabola parties brokered it via a "reverse auction" process. The opposition was filed by Jahan C. Sagafi and Rachel W. Dempsey of Outten & Golden LLP; Thomas V. Girardi and David of Girardi Keese, who are no longer on the case; and Stephen J. Schultz and Mark T. Bennett of Merrill, Schultz & Bennett, Ltd. Gregg v. Uber, BC719085 (L.A. Super. Ct., filed Aug. 29, 2018).

Sagafi has accused other plaintiffs' attorneys of similar conduct in other PAGA cases involving Uber and Lyft. Last year, he co-developed a policy against reverse auctions for the California Employment Lawyers Association.

Under the terms of the agreement in Tabola, approximately $6.8 million of the $10.8 million proposed settlement would be paid out as PAGA penalties, said Patricia M. Kelly, an attorney for the Labor Commissioner wrote in an opposition brief filed in September. "Based on Plaintiff's own numbers, the value of the PAGA penalties before discounting for litigation risks is over $8 billion and after discounting the value for risks of litigation, the value of the PAGA penalties is in excess of $500 million," Kelly wrote. "Yet, the settling parties ask the court to approve a settlement of less than $7 million, which is less than .08% of Plaintiff's own value after reduction of the claims due to litigation risks."

But William P. Klein of Klein Law Group LLP, who represents the drivers in Tabola and struck the settlement agreement with Uber, noted a 2017 PAGA claim that alleged misclassification settled for even less, even though more workers were involved in that case. "The potential penalties in that case were $121 billion. Yet they settled on an amount that was a mere fraction of that," Klein said. "When we compare the settlement that we have here to the Price settlement, the Price settlement had a release period that was 34 weeks longer. Price had more workers -- it had a million and a half workers compared to less than a million workers in Tabola. And yet the civil penalties that were allotted to the state were about 3.8 million. In our case, the civil penalties... what we're asking the court for is 6.8 million." Price v. Uber, BC554512 (L.A. Super. Ct., filed Aug. 12, 2014).

Klein added the point of the civil penalties was to deter Uber from continuing to break the law by misclassifying their workers. But with the passage of Proposition 22, "if we asked ourselves what value -- what numerical value would need to be in our settlement to make sure Uber is in compliance... the answer is zero," Klein said.

Andrew M. Spurchise, a shareholder at Littler Mendelson P.C. who represented Uber, agreed. "The notion of imposing penalties on Uber at this point... is completely inequitable," he said. "It's not even clear there is a continuing legal basis to recover penalties." Spurchise added if the settlement isn't approved, it could potentially result in a ruling that the plaintiffs and the state are not entitled to any settlement.

At the hearing, and in briefs filed beforehand, attorneys representing the Labor Commissioner's office and plaintiffs in Gregg v. Uber argued Proposition 22 does not apply retroactively and therefore should not apply to the claims in Tabola, which were filed years before Proposition 22 was voted into law.