Ninth Circuit Decision Deals Setback to Uber Drivers

By Owen Laird, Esq.

A recent decision by the Ninth Circuit Court of Appeals has cast into doubt the validity of a range of lawsuits against Uber by its drivers.  The decision held that the mandatory arbitration provision in Uber’s contracts with its drivers is enforceable; as a result, Uber drivers may be foreclosed from bringing vast majority of their claims against Uber in court.

The ongoing legal saga between Uber and their drivers is one of the most significant labor disputes in the United States today.  Uber – the multi-billion-dollar taxi app – and its Silicon Valley startup brethren seek profitability by transforming the way people interact, work, and live their lives.  In Uber’s case, a central aspect of that transformation is redesigning the traditional employee/employer relationship: Uber classifies its drivers as independent contractors, not employees.  This decision benefits Uber and disadvantages its drivers because independent contractors do not receive the same basic legal privileges ­– such as anti-discrimination protections, minimum wage, and overtime – that employees do.

Various Uber drivers and groups of Uber drivers have filed a variety of different claims against Uber.  While the group misclassification suits bear the most potential liability for Uber, each action is significant.  Uber requires its drivers to sign a contract which includes an arbitration agreement; these plaintiffs, by filing their actions publicly in court, are challenging the legitimacy of that clause.  Uber’s arbitration agreement requires its drivers to waive their right to bring claims in federal or state court, mandating that drivers bring their claims against Uber to an arbitrator instead.  The arbitration agreement also prohibits drivers from bringing claims as a group: drivers must file their actions individually.

Arbitration agreements of this type have vexed plaintiffs and plaintiffs’ attorneys for years, but the majority of recent court decisions support their use.  The Ninth Circuit continued the trend of allowing broad arbitration agreements by holding that Uber’s agreement was not unconscionable and, therefore, could be enforced.  By preventing plaintiffs from acting together in a class action, Uber eliminates one of their drivers’ powerful tools.  It is likely that many drivers who are participating in these suits as class members will not bother to file their own claim in arbitration, due to the time and expense involved in litigation.

Of particular interest to both the District Court – which initially ruled against Uber ­– and the Court of Appeals was language that required Uber’s drivers to share equally in the costs of arbitration.  The District Court found that putting such a significant financial burden on individual drivers rendered the arbitration provision unenforceable.  The Ninth Circuit, relying on the fact that Uber “has committed to paying the full costs of arbitration,” disagreed, and declined to address the matter of whether the prior fee agreement was enforceable.

The Ninth Circuit also reversed the lower court on the matter of the inclusion of claims filed under California’s Private Attorneys General Act (PAGA) in the arbitration agreement.  Under California law, PAGA claims cannot be waived.  The District Court held that this defect rendered the entire arbitration provision unenforceable.  The Ninth Circuit disagreed, and held that Uber drivers can bring PAGA claims in court but must otherwise abide by the terms of the arbitration agreement.

The nature of the work relationship between Uber and its drivers has broad-reaching ramifications for the economy as a whole.  Because Uber can force these cases to be heard in a private forum, this issue will not be decided in public by the judicial branch of government, but in closed rooms by individual arbitrators working for a private company.

If you have an employment dispute with your employer, contact The Harman Firm, LLP.