Just like a growing number of companies are quietly stripping consumers of their right to a jury trial, so too are employers using workers’ contracts to insert clauses that prevent them from bringing lawsuits in court. Yesterday, a federal appeals court ruled that most Uber drivers signed away their rights to pursue legal action against the company, putting multiple lawsuits — and a potential $100 million class action settlement — at risk.
In 2014, two California Uber drivers filed separate lawsuits against the company, both alleging violations of federal credit reporting laws. One of the complaints also accused Uber of incorrectly categorizing drivers as third-party contractors rather than employees.
Since at least 2013, Uber’s agreements with its drivers have included an arbitration clause, stating that a driver can not sue the company in court but must resolve all legal disputes through private arbitration. Additionally, Uber drivers with the same dispute can not join their complaints together — even through arbitration — to have their case heard as a class action.
The Uber driver agreement does offer drivers the ability to opt out within 30 days of accepting the terms, but neither of the two plaintiffs in these cases had exercised that option. Thus, Uber asked the court to compel arbitration in both lawsuits.
Given that the U.S. Supreme Court has repeatedly (but not unanimously) issued rulings in favor of compelling arbitration, you might expect a federal judge to side with Uber.
However, in June 2015, U.S. District Court judge Edward Chen denied [PDF] Uber’s request to force the plaintiffs into arbitration, concluding that the Uber arbitration clause is both “procedurally and substantively unconscionable, and therefore unenforceable as a matter of California law.”
Not surprisingly, Uber appealed, and yesterday a Ninth Circuit Court of Appeals panel overturned [PDF] the lower court’s ruling.
One of Judge Chen’s reasons for ruling that the arbitration clauses were unenforceable is that they actually prevent the driver from being allowed to dispute the underlying validity of the provision in court. Instead, if a driver wants to challenge the enforceability of Uber’s arbitration clause, it must be done through arbitration.
In its appeal, Uber argued that this very condition of the arbitration agreement means that Judge Chen had no authority to rule on the validity of the provision. The Ninth Circuit agreed, concluding that the “district court erred… and improperly assumed the authority to decide whether the arbitration agreements were enforceable.”
That means that Judge Chen has to compel the plaintiffs in these two cases into arbitration, rather than allowing their disputes to move forward as class actions. It also effectively short-circuits a number of pending and future lawsuits involving Uber drivers and the company.
The biggest question is how it will impact the pending nine-figure settlement between Uber and drivers who challenged their “independent contractor status.”
Last spring, the company agreed to a settlement worth up to $100 million, spread out over nearly 400,000 drivers in California and Massachusetts.
While yesterday’s Ninth Circuit ruling does not directly address that particular case, Judge Chen had used the same rationale for allowing all of these disputes to move forward. As the lawyer representing the drivers in the $100 million settlement case admitted to the Wall Street Journal yesterday, this ruling “addresses the reasoning that Judge Chen used to strike the arbitration clause in our case.”
It’s likely that Uber will file a motion to apply the Ninth Circuit ruling to that pending case, meaning that — if successful — only drivers who opted out of the arbitration agreement would remain. Their attorney estimates that would leave only a few thousand of the 385,000 drivers currently included in the class action. She does, however, tell the NY Times that she has already lined up around 1,500 California Uber drivers who have agreed to enter into individual arbitration.
The Ninth Circuit ruling does not address the arbitration issues involved in consumers’ lawsuits against Uber. The service’s terms of service include an arbitration clause, but in July a federal judge in New York denied the company’s motion to compel arbitration in a lawsuit brought by Uber customers.
He concluded that, because of Uber was not more conspicuous about the arbitration clause or the agreement process, the company could not demonstrate that users were given adequate notice that they had even agreed to the provision. Uber is in the process of appealing that decision to the Second Circuit.