State labor chief says Uber drivers deal was reverse auction

The state labor commissioner is one of the parties objecting to a $10.8 million PAGA settlement between Uber and a class of drivers.

But the attorneys who brokered the agreement said during a Tuesday court hearing the settlement amount is notably higher than what Uber had agreed to pay in earlier PAGA cases. They also said the passage of Proposition 22, which upheld Uber's long-standing 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 in the litigation.

Rachel Williams Dempsey, an associate at Outten & Golden LLP who represents another class of Uber drivers and also objected to the $10.8 million figure, said Tuesday, "There is no rational relationship between" the drivers' "strong claims" of misclassification and the "very weak" settlement.

The state agency attended Tuesday's hearing not so much 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 -- but to protest the conduct it says both Uber and the plaintiffs engaged in to reach their $10.8 million settlement.

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, Labor Commissioner Lilia García-Brower 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's attorneys argued, judgment entered on any one of the claims could wipe out the rest. In a reverse auction the plaintiffs' counsel who secure the first judgment are entitled to the attorney fees -- giving them an incentive to broker a less-than-ideal settlement amount with the defendant employer, the state argued. Meanwhile, "defendant employers are able to choose among competing plaintiffs and seek settlement for the lowest amount possible," the state said.

According to the state's filings, 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 labor commissioner's office was not the first to raise suspicions about the settlement. Shortly after the agreement was submitted for court approval, attorneys representing another plaintiff in a similar case, Gregg v. Uber, which has similar claims to Tabola, filed their own opposition, alleging the Tabola parties brokered the settlement via a reverse auction process. Gregg v. Uber, BC719085 (L.A. Super. Ct., filed Aug. 29, 2018).

The opposition was filed by Dempsey and Jahan C. Sagafi and Rachel W. Dempsey of Outten & Golden LLP; Thomas V. Girardi and David Lira 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 codeveloped 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, Patricia M. Kelly, an attorney with the state's Division of Labor Standards Enforcement, wrote in an opposition brief filed in September. "Based on plaintiffs' 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 plaintiffs' 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 reached the agreement with Uber, noted a 2017 PAGA claim that alleged misclassification settled for even less, even though more workers were involved in that case. Price v. Uber, BC554512 (L.A. Super. Ct., filed Aug. 12, 2014).

"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."

Klein added the point of civil penalties is to deter an employer 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 PC 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 Garcia-Brower 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.