By Joel Rosenblatt, Bloomberg News
Uber Technologies Inc. may come out ahead by failing to win court approval of a $100 million settlement with drivers.
Even before a San Francisco federal judge rejected the deal on Thursday, the drivers’ lawyer said the ride-hailing giant may have the upper hand to walk away from further negotiations because an appeals court hinted that it might overrule a key pretrial ruling in the fight over whether drivers must be treated as employees.
If the three-year-old lawsuit collapses, the world’s most valuable technology startup would escape without any significant changes to its business model or financial sacrifice while keeping hundreds of thousands of California and Massachusetts drivers classified as independent contractors. While Uber faces driver lawsuits elsewhere, as well as challenges to its pricing and business practices, the California case was seen as the most likely to upend its gig-economy workforce model because of the state’s relatively tough labor laws.
Before an appeals court added a new wrinkle to the California case, the biggest task for drivers’ attorney Shannon Liss-Riordan was to convince U.S. District Judge Edward Chen that the agreement she reached with the company in April is fair and reasonable. Dozens of drivers and other lawyers claimed the deal would let Uber off the hook too easily.
Liss-Riordan told Chen in a June 17 filing that if the U.S. Court of Appeals overturns a ruling by him that invalidated Uber’s arbitration agreements with drivers in a different case, the result would be to eviscerate her class action, reducing it to “a few thousand drivers.” The three-judge panel’s comments and questions at a June 16 hearing showed that it may be poised to overrule Chen, and even that “leaning” may give Uber leverage and dramatically diminish Liss-Riordan’s “ability to negotiate modifications to the agreement,” she said.
While acknowledging the risk a trial presents for both Uber and the drivers, Chen rejected the deal as unfair. He said he wasn’t convinced that the change to the tipping policy will result in the “substantially increased income” promised by Liss- Riordan.
“The settlement, mutually agreed by both sides, was fair and reasonable,” Matt Kallman, an Uber spokesman, said in an e- mail.“We’re disappointed in this decision and are taking a look at our options.”
A legal scholar who’s been following the case said Uber may now decide that rather than negotiate with Liss-Riordan, it’s better off trying to force the vast majority of drivers she represents into arbitration, where the company can fight them one-on-one.
“There’s a good chance that the parties would be unable to reach a new settlement -- at least not one that covers all 385,000 drivers now in the class,” Charlotte Garden, an associate professor at Seattle University School of Law, said before Thursday’s ruling.
Uber and Liss-Riordan were roundly attacked in court filings and at a June 2 hearing before Chen over claims the agreement benefited them at the expense of drivers.
While Liss-Riordan argued that she negotiated the best deal possible and faced a significant risk of recovering nothing for drivers at a trial, she later offered to cut $10 million from her $25 million fee request and earmark that money for drivers.
Uber agreed as part of the April deal to let drivers solicit tips and allot payouts based on the miles they’ve driven. Chen questioned whether a broad provision in the settlement releasing the company from liability for violations of labor laws “hijacked” claims for minimum wage, overtime and workers compensation that drivers are pursuing in other cases.
Liss-Riordan told the judge that Uber wouldn’t have gone along with the settlement without a guarantee of “global peace.”
She said she made a strategic decision to focus on mileage reimbursement and tips claims because they were most likely to succeed if the case went to trial.
Ted Boutrous, a lawyer for Uber, said at the hearing that “there’s no incentive for Uber to settle” without releases extinguishing all claims stemming from the core dispute over whether the drivers are employees or contractors.
On June 23, Lyft Inc., the largest U.S. ride-hailing company behind Uber, moved a big step closer to sealing its $27 million deal with drivers that leaves them classified as independent contractors when the settlement won preliminary approval from another judge in the same courthouse as Chen.
U.S. District Judge Vince Chhabria in April had rejected an earlier $12.5 million offer, saying it shortchanged drivers because it didn’t properly account for the company’s rapid growth. With Chhabria’s approval, about 163,000 current and former California drivers will be told they can claim their share of the settlement, object to it or opt out, before a final settlement hearing.
The Uber case is O’Connor v. Uber Technologies Inc., 13- cv-03826, U.S. District Court, Northern District of California (San Francisco). The Lyft case is Cotter v. Lyft Inc., 13- cv-04065, U.S. District Court, Northern District of California (San Francisco).
--With assistance from Eric Newcomer.