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This summer, Uber announced a settlement of the class actions claims against it in California and Massachusetts for a monetary payment of up to $100,000,000. But the judge overseeing the case rejected the settlement. Separately, but significantly, a federal appeals court ruled that the arbitration agreements signed by most drivers were enforceable. So what does this mean for the tens of thousands of people who drive for Uber in California?

The Rejected Settlement

The class action settlement rejected by the judge included both monetary and non-monetary terms. The monetary component included a guaranteed payment of $84,000,000, with an additional $16,000,000 possibly added as part of an Initial Public Offering (IPO). The non-monetary component included a new “Deactivation Policy”, a more comprehensive Star Ratings policy, the creation of a Driver Association, and a clarification on Uber’s tipping policy. But perhaps most puzzling and potentially problematic, the rejected settlement did not require Uber to reclassify drivers as employees.

Because the Uber case had not been formally certified by the court as a class action and because the settlement involved class-wide compensation, the judge was required to closely scrutinize the settlement to determine if it was “…fundamentally fair, adequate, and reasonable.” (See, Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998)). The judge analyzed, among other things, the risks to the plaintiffs and Uber if the settlement was rejected; the monetary and non-monetary terms of the settlement; the status of the proceedings and extent discovery had been completed; the experience and views of counsel; the presence of a government participant; and the reaction of class members to the settlement. Balancing those factors, the court was inclined to find that the compensation provided to drivers under the settlement to be adequate, but nonetheless rejected settlement partly due to the amount the state of California would receive for claims brought under the California Private Attorneys General Act (PAGA). Under PAGA, private plaintiffs may recover on the state’s behalf civil penalties, of which 75% is owed to the state. The settlement would have settled all PAGA claims for $1 million. California’s Labor & Workforce Development Agency (LWDA) objected to this amount, arguing that the PAGA claims could result in penalties totaling over $1 billion. Because the parties failed to offer any rational basis for settling the PAGA claims for only $1 million, the court could not find the PAGA portion of the settlement to be fair and adequate. As such, the Court rejected the entire settlement because it was not, “…fair, adequate, and reasonable.”

The parties have returned to the negotiating table, but in light of a ruling handed down by the Ninth Circuit Court of Appeals in September (see, below), settlement may prove difficult.

Ninth Circuit Court of Appeals decision re: arbitration provision

On September 7, 2016, the Ninth Circuit Court of Appeals ruled that the district court erred in deciding the Uber arbitration agreements were unenforceable. As a result, all Uber drivers who did not “opt out” of the arbitration provisions will be required to separately arbitrate their misclassification claims. This will significantly reduce the number of drivers who can pursue their claims against Uber through a class action. The Ninth Circuit also held that the waiver of PAGA claims against Uber contained in Uber’s service agreement should be severed, because the PAGA claims could proceed in court. It is possible that just the PAGA claims may proceed against Uber in court.

Impact on Uber drivers

At this juncture, Uber drivers are still in limbo as to whether they are employees or independent contractors, whether they can ask for tips, and whether the new “deactivation policy” has, or will be, implemented. As to their status, drivers may just have to wait until after a trial and appeals process has concluded. Further, for all of the Uber drivers who did not “opt out” of the arbitration provisions, they will likely have to pursue their claims in arbitration.

Uber recently announced a class action settlement for California and Massachusetts drivers involving a monetary payment of up to $100,000,000. This lawsuit was the first of several class action lawsuits against Uber.

WHY ARE DRIVERS SUING UBER?

The recently settled lawsuit primarily focused on how Uber classifies its drivers. Uber classifies its drivers as independent contractors, but many drivers feel that they should be classified as employees. How a driver is classified is important because it determines whether the driver or Uber is responsible for paying all costs associated with performing driving duties, such as insurance, maintenance, cell phone, and gas. Inparticular, California Labor Code §2802 provides, in relevant part, that “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties…” This means that employers must pay for all business related experiences incurred by it employees when they are performing their job duties. So if a court determined that Uber drivers should have been classified as employees, then Uber would owe drivers for all costs they occurred while performing work for Uber. Considering Uber utilizes almost half a million drivers across the country, this financial burden would be significant.

WERE UBER DRIVERS MISCLASSIFIED AS INDEPENDENT CONTRACTORS UNDER CALIFORNIA LAW?

Under California Labor Code §3357, workers are presumed to be employees. This presumption, however, can be overcome if numerous factors weigh in the hirer’s favor:
⇒ Does the hirer control the person’s work details, such as how, when, where, and where the work is performed? If yes, then this factor weighs in favor of the person being an employee
⇒ Does the person perform work in an occupation or business that is the same as the hirer’s business? If yes, then this factor weighs in favor of the person being an employee
⇒ Does the person perform work that is part of the hirer’s regular business? If yes, then this factor weighs in favor of the person being an employee “1
⇒ Does the hirer provide the person with a work place, as well as the equipment, materials, instrumentalities and tools necessary to perform the work? If yes, then this factor weighs in favor of the person being an employee
⇒ Does the person only have minimal financial investments in equipment, materials, and tools required to perform the work? If yes, then this factor weighs in favor of the person being an employee
⇒ Does the work performed require a unique skill in a particular occupation? If no, then this factor weighs in favor of the person being an employee
⇒ Does the person require the hirer’s supervision? If yes, then this factor weighs in favor of the person being an employee
⇒ Does the person’s opportunity for profit or loss depend on his or her own managerial skills? If no, then this factor weighs in favor of the person being an employee
⇒ Is the length of the working relationship limited to particular tasks the person was hired to perform? If no, then this factor weighs in favor of the person being an employee
⇒ Does the person get paid by hour as opposed to by the job? If yes, then this factor weighs in favor of the person being an employee
⇒ Do the parties believe they are creating a hirer-independent contractor relationship? If no, then this factor weighs in favor of the person being an employee
Even where there is an absence of control over work details, an employer-employee relationship will be found if (1) the hirer retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. (See, Yellow Cab Cooperative v. Workers Compensation Appeals Board (1991) 226 Cal.App.3d 1288). In short, when these factors are applied to Uber drivers, the factors seem to favor independent contractor status, but it’s a close call, which is likely a reason why the case settled.

THE PROPOSED UBER SETTLEMENT TERMS

The primary monetary and non-monetary terms agreed to in the settlement of the California/Massachusetts class action are as follows:

Monetary Payouts

The monetary component of the Settlement provides for a non-reversionary Settlement Fund in the amount of $100,000,000 of which a payment of $84,000,000 is guaranteed and as additional $16,000,000 is contingent on an Initial Public Offering (IPO) of Uber yielding an average valuation of at least 1 ½ times Uber’s most recent valuation over a 90-day period at any point within 365 days from the closing of the IPO, or if a Change in Control of Uber within three years of the date of final settlement approval yields a valuation of at least 1 ½ times Uber’s most recent valuation.

This Settlement Fund…will be distributed to Class Members pursuant to a plan of allocation…based on a formula that reflects the proportionate value of class members’ claims, considering the following factors: (1) whether they drove in California or Massachusetts; (2) if they drove in California, whether they are a member of the certified class; (3) whether they opted out of Uber’s arbitration clause; and (4) the number of miles drivers have transported Uber passengers (i.e., ‘on trip’ mileage”).

Changes to Uber’s Business Practices

Uber also agreed to change to its business practices in California and Massachusetts as follows:

Deactivation Policy – Uber will institute a ‘Comprehensive Deactivation Policy’ that will only allow Uber to deactivate drivers if it has ‘sufficient cause.’ Uber will give drivers at least two prior warnings (except for reasons involving safety, fraud, discrimination or illegal conduct) and must give reason for any deactivation in writing. Uber also will publish its deactivation guidelines to provide transparency regarding its deactivation rules and policies.

Star Ratings – Uber will provide additional information to drivers about their star ratings and their rankings relative to other drivers and will provide more clarity about what customer ratings thresholds a driver must maintain in order to increase clarity and transparency for drivers.

The Driver Association – Uber will fund and facilitate the creation of a ‘Driver Association’ in California and Massachusetts, through which drivers will have the opportunity to elect driver leaders who will meet quarterly with Uber management.

Tips – Uber will clarify on its website and in communication with drivers and riders that tips are not included on Uber’s platforms and that tips are not expected, required or prohibited.

No Reclassification – The agreement does not require Uber to reclassify drivers as employees.

WHY ISN’T EVERYONE HAPPY WITH THE SETTLEMENT?

Although the settlement requires Uber to shell out money, the settlement also allows Uber to continue classifying its drivers as independent contractors. This would save Uber millions of dollars in business expense reimbursements by requiring drivers to continue paying for all business related expenses. The driver who served as lead plaintiff, Douglass O’Connor, a San Francisco Uber driver, submitted a formal declaration to the court objecting to the settlement and requesting to withdraw his consent. He declared that Class Counsel, Shannon Liss-Riordan, “…pushed him to sign the deal before he understood all that it would entail”. Hunter Shkolnik, a New York lawyer who is pursuing other driver cases against Uber, stated that “[Ms. Liss-Riordan] has single-handedly stuck a knife in the back of every Uber driver in the country. The entire class was thrown under the bus and backed over.”

In response, Ms. Liss-Riordan said, “It is easy for others to come in and second-guess, but cases are settled all the time, and it is the lawyer’s duty to assess and balance the risks and make recommendations.” Ms. Liss-Riordan believes she achieved a fair settlement for the drivers.

Uber published a letter to its drivers indicating that over 450,000 drivers use the app each month in the U.S. and that nearly 90 percent of drivers say that they use Uber because they want to be their own boss — and thus presumably want to remain classified as an independent contractor. http://uberpeople.net/threads/letter-from-travis-uber-settlement-deactivation-policy. 73814/ UBER DRIVERS HAVE SEVERAL OTHER LAWSUITS AGAINST UBER Since the California/Massachusetts settlement was announced, Uber has been sued in class action lawsuits in Florida, Illinois, Indiana, New Jersey, New York, and Texas, to name a few. It should come as no surprise that other lawsuits would pop up, considering the plaintiffs’ attorney in the California/Massachusetts litigation will likely pocket $10,000,000 to $20,000,000 of the total settlement. The Florida and Illinois actions are “nationwide” and pertain to all current and former Uber drivers in the United States, except for those in California and Massachusetts. Because Uber wants drivers to remain classified as independent contractors, it will likely also settle these cases before trial.