Uber in dare to judge says it’s ready to ditch driver settlement

Uber Technologies Inc.’s message to the judge who must approve its $100 million settlement with drivers is clear: take it or leave it.

In an escalating game of courtroom brinkmanship, Uber has hit what may be an impasse with U.S. District Judge Edward Chen over its demand that, as part of the deal, he erase his own order intended to protect the ride-hailing company’s drivers.

"Uber is almost daring Judge Chen to go against its wishes," said Charlotte Garden, an associate professor at Seattle University School of Law. "Uber all but says that if he doesn’t treat the issue the way it wants, it will walk away from the deal."

That gives the San Francisco judge the choice of approving what he sees as a flawed agreement or sending lawyers back to the bargaining table knowing that the settlement is likely to fall apart. That would leave more than 350,000 drivers in California and Massachusetts with nothing to show for three years of court battles.

Uber wins either way because the settlement will let the world’s most valuable technology startup escape with a relatively small financial sacrifice and only minor tweaks to its business model, keeping drivers classified as independent contractors instead of employees. If the deal isn’t approved now, Uber may get a favorable appeals court ruling any day that will give it the upper hand in any further negotiations.

The end result may be that the case once seen as the most likely to upend the gig economy’s no-guarantees work rules could embolden Uber and other companies facing similar lawsuits across the U.S. to dig in their heels.

Turning point

The standoff stems from what Uber has described as Chen’s “seek and destroy mission” to nullify its arbitration agreements.

The turning point that shifted the momentum in Uber’s favor was a June appeals court hearing in the company’s challenge to a ruling by Chen that undermined its ability to limit lawsuits. While the appeals court hasn’t ruled, the panel gave strong hints it may allow the company to enforce arbitration agreements prohibiting the vast majority of its drivers from joining class-action lawsuits.

The judge first found Uber’s 2013 and 2014 arbitration provisions to be unfair and unenforceable. He then ruled in December that going forward, Uber must take steps to make it easier for drivers to opt out of arbitration — and preserve their right to take disputes to court. He ordered the company to send drivers an email with the opt-out option highlighted in bold text and a hyperlink to register their choice with a single click.

Uber argued in court filings that Chen’s "bizarre requirements" were an illegal intrusion into its business and would convey an inappropriate message that "drivers should opt out of arbitration."

Driver rights

Uber and the lawyer for the drivers, Shannon Liss-Riordan, agreed as part of the settlement announced in April that the judge’s December order must be wiped from the record.

Chen has said undoing his order might strip some drivers of their legal rights. Uber has refused to budge, saying that provision is critical to preserving the settlement.

"So much so in fact," Uber’s lawyers wrote, that the company has the right to walk away from the deal “unless and until the court vacates” its order, and allows it to "distribute and enforce" its 2015 arbitration agreement to all drivers nationwide.

“Uber’s position is if we don’t have freedom going forward to craft arbitration agreements how we want, we’re not going to have a settlement,” said Katherine Stone, an employment law professor at the University of California at Los Angeles. “It’s a my-way-or-the-highway kind of term.”

Uber’s ultimate aim may be to do away with the opt-out provision altogether, making arbitration mandatory, she said.

The proposed settlement allows drivers to solicit tips and allots payouts based on the miles they’ve driven. It also provides non-monetary benefits including protection against being terminated without reason.

Dozens of drivers and other lawyers claimed the deal lets Uber off the hook too easily, with drivers forfeiting their demand for employee status and a chance to win hundreds of millions of dollars at trial as compensation for unpaid tips and expenses.

Claims ‘hijacked?’

Chen questioned at a June hearing whether one provision releasing the company from liability for violations of labor laws “hijacked” drivers claims in other cases for minimum wage, overtime and workers compensation. He later peppered lawyers on both sides of the accord with a barrage of written questions, saying he needed more information to decide whether to grant preliminary approval.

While Chen has focused his attention on making sure the settlement is adequate, Liss-Riordan warned him the looming ruling by the U.S. Court of Appeals in San Francisco may leave her without any bargaining power if he rejects the deal.

Comments and questions about Uber’s arbitration agreements at the June 16 appeals court hearing showed that the judges may be poised to overrule Chen’s order declaring the 2013 and 2014 arbitration agreements unenforceable, Liss-Riordan said in a June 17 filing. She said that “leaning” may dramatically diminish her “ability to negotiate modifications to the agreement.”

Liss-Riordan in June won preliminary approval of $27 million agreement with Uber rival Lyft Inc. that left its drivers classified as contractors. She and and Matt Kallman, a spokesman for Uber, declined to comment on their proposed settlement.

While facing the possibility that the appeals court may reverse his rulings, Chen hasn’t embraced the notion of voiding the key December decision and has demonstrated a willingness of his own to push the case toward the brink.

"I have a problem of retroactively vacating an order that purported to and attempted to afford some protection to class members,” Chen told lawyers for both sides in June. "If that thwarts this settlement, among other things, that may be the case."

The case is O’Connor v. Uber Technologies Inc., 13-cv-03826, U.S. District Court, Northern District of California (San Francisco).