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Legal Insights
Dan Handman Speaks to the Daily Journal About Uber Settlement and Arbitration Contract
04.25.2016

HK's Dan Handman tells the Los Angeles/San Francisco Daily Journal that if Uber is correct about the strength of their arbitration contract, a huge potential liability is behind them.
The text of the story can be seen below.

Uber settlement leaves questions about judge's approval, arbitration

Rideshare company could still face misclassification suit

By Matthew Blake

A lawsuit alleging that Uber Technologies Inc. misclassifies drivers as independent contractors was headed for a San Francisco jury, with the matter of employment classification in the sharing economy also on trial, but a settlement filed late Thursday has deferred the unresolved legal issues for another venue.

The deal before U.S. District Judge Edward M. Chen would provide a class of more than 240,000 California and Massachusetts Uber drivers up to $100 million and change some company employment policies, but keep drivers as independent contractors. O'Connor v. Uber Technologies Inc., CV13-3826 (N.D. Cal., filed Aug. 26, 2013).

Employment lawyers noted that the settlement, if Chen approved, could merely buy the San Francisco-based rideshare company time before the next misclassification lawsuit. The settlement cannot preclude a lawsuit by a future Uber driver or one who affirmatively opts out of the class.

"I think Uber is in a slightly better position than a year before," said Sean N. Pon, an employment defense lawyer at Hinshaw & Culbertson LLP. "But I wouldn't say they are in a great position or there is great change with their potential liability."

Some lawyers, though, say Uber has an ace in the hole should it be hit with future litigation from California or Massachusetts drivers, or copycat lawsuits in other states.

The company presented a contract to their workers in December stating they must individually bring any workplace grievances before a private arbitrator, which could preempt future class actions in the public eye. The arbitration agreements, which lets workers opt out, addresses problems with previous contracts that courts invalidated.

"If Uber is right that their arbitration contract is going to hold water, that puts a huge potential liability behind them," said Daniel H. Handman, an employment defense lawyer at Hirschfield Kramer LLP.

But before Uber can prepare for their next legal skirmish, Chen, who has sided with the plaintiffs in most key turns of the case, must OK a resolution filed by plaintiff attorney Shannon Liss-Riordan of Boston-based Lichten & Liss-Riordan and Uber lawyer Theodore J. Boutrous of Gibson, Dunn & Crutcher LLP. A hearing on preliminary approval is scheduled for June 2.

Liss-Riordan and Boutrous did not respond to questions for this story, and an Uber spokesman declined comment.

Chen will review the $100 million figure, which includes a contingent $16 million based on the success of Uber's initial public offering and is only a few hundred dollars per driver when averaged out among California workers and a smaller Massachusetts plaintiff class.

At the high end, a worker who has driven more than 25,000 miles and opted out of the arbitration contract could get $8,000. Uber's drivers who work part-time get about $200.

Fellow San Francisco federal Judge Vince G. Chabbria rejected earlier this month a $12.25 million settlement that rideshare #2 Lyft Inc. reached with a class of drivers, also represented by Liss-Riordan. Chabbria said the settlement was too small, but lawyers do not think Chen will follow Chabbria, noting the judge took specific exception to how Liss-Riordan calculated gas reimbursement.

What Chen could object to is that company policy changes stop short of reclassifying drivers as employees, who are thereby entitled to state protections including paid sick days and federal benefits such as employer-paid Social Security.

In an order denying Uber's motion for summary judgment last year, Chen took apart the defendant's claim they are a technology company simply facilitating smart phone app interactions between riders and independent contractor drivers.

"The most striking part of the settlement is that Uber can continue to classify their drivers as independent contractors," Handman said. "I think the judge will approve, but that is the biggest obstacle to him."

Cliff Palesksy, a plaintiff attorney at McGuinn Hillsman & Palefksy, said that despite no change in classification status there are enough worker friendly provisions to win over the judge. For example, Uber drivers can only now be fired for sufficient cause, and workers can participate in a drivers association, financed by the company, in which they can band together to bring grievances. Palefsky agreed with a concern expressed by Liss-Riordan in court filings that it was too risky to let the 9th U.S. Circuit Court of Appeals review Chen's order that invalidated Uber's arbitration agreement.

The appellate court accepted review earlier this month and scheduled oral arguments for June, likely postponing the jury trial. Were the 9th Circuit to have fully sided with Uber, the class could have been reduced from 240,000 to 8,000 workers.

The possibility of individualized arbitration complaints may have ended this case - and Uber hopes it will prevent future misclassification class actions.

"Reading the tea leaves," said Matthew Warren, an employment defense lawyer at McManis Faulkner, "Uber believes the issue of independent contractor status will be resolved through arbitration."

 

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