Judge rejects Uber’s settlement offer
Ride-hailing company sought to prevent court case over pay, benefits
SAN FRANCISCO — Inserting fresh uncertainty into the debate over whether on-demand workers are entitled to em- ployee benefits, a federal judge on Thursday rejected Uber’s $84 million settlement offer in a high-profile case brought by the ride-hailing company’s drivers.
The deal inked in April represents just 5 percent of what could have been recovered had drivers won at trial, U.S. District Judge Edward Chen wrote, finding the settlement “is not fair, adequate, and reasonable.”
Despite its hefty price tag — the proposed deal would balloon to $100 million in the event of a successful Uber IPO — the settlement was a win for Uber because it saved the ridehailing giant from upending its business model, reclassifying its independent contractor drivers as employees and paying the added expenses of benefits. The judge’s ruling raises new questions about the fate of Uber
“The settlement as a whole as currently structured isnot fair, adequate, and reasonable.” — U. S. District Judge Edward Chen of S.F. in ruling
and other on-demand companies that use the same business model.
“This is a huge shadow that is being cast over the entire sharing economy,” said employment attorney Stephen Hirschfeld, of San Francisco. “One way or another, it’s going to have to get resolved, whether it’s through the courts or the legislature.”
Uber, the world’s most valuable startup, likely will have to offer up more cash to resolve the class-action litigation or try its luck in front of a jury.
The company responded to the judge’s order in a written statement Thursday, defending the deal that would affect nearly 400,000 drivers who have driven in California and Massachusetts since 2009. Drivers would receive average payouts ranging from $25 to several thousand dollars depending on how much they drove.
“The settlement, mutually agreed by both sides, was fair and reasonable,” a spokesman wrote in an emailed statement. “We’re disappointed in this decision and are taking a look at our options.”
Uber also is probably watching the Ninth Circuit Court of Appeals, which is considering the agreements Uber has drivers sign that govern how they resolve disputes with the company. The Ninth Circuit recently indicated it’s likely to uphold Uber’s arbitration agreements. Such a ruling would force the litigation out of court and into private, individual arbitration, where verdicts are likely to be much smaller. With such a big potential win on the horizon, Uber may decide to scrap the settlement and take its chances by drawing out the litigation, Hirschfeld said.
Harry Campbell, who drives for Uber and Lyft in Los Angeles and runs a blog called TheRideShareGuy. com, said the proposed deal seemed to let Uber off easy.
“It’s sort of like Uber gets a little slap on the wrist,” he said. “What’s $100 million compared to a $63 billion valuation?”
Boston-based attorney Shannon Liss-Riordan, who represents the drivers, said her team would wait and see whether the two sides can agree to a new settlement.
“But if not, as I’ve said before, I will take the case to trial and fight my hardest for the Uber drivers,” she wrote in an email.
Chen’s main complaint with the settlement stemmed from a claim drivers brought under California’s Private Attorney General Act (PAGA), which would have been worth more than $1 billion at trial. Instead, the lawyers involved in the case settled that piece of the case for $1 million, or 0.1 percent of its worth, Chen wrote, which he found unacceptable.
Chen also scrutinized some of the nonmonetary relief the settlement promised drivers, such as Uber’s agreement to clarify its tipping policy and make clear that tips are not included in fares. Chen pointed out that Uber has simultaneously discouraged riders from tipping.
“Uber may be permitting tipping,” he wrote, “but it is also telling riders not to tip.”
The judge also noted that the deal has received considerable backlash both from drivers — including the named plaintiff Douglas O’Connor himself — and from other lawyers who argue it would unfairly nullify their own lawsuits against the company.
That backlash probably played a role in Chen’s decision to turn down the deal, Hirschfeld said, and judges are growing increasingly critical of class-action settlements. Another federal judge in San Francisco rejected Lyft’s initial $12.25 million settlement in a similar case over the status of its drivers, approving a beefedup $27 million deal in June. And a $324.5 million settlement between Apple, Intel, Google and Adobe and employees was rejected last year in San Jose, forcing the companies to cough up another $90 million.