Uber Technologies Inc. may come out ahead by failing to win tribunal approval of a $100 million settlement with drivers.
A San Francisco federal judge rejected the agreement on Thursday, a turn of events that would typically foster the ride-hailing giant to sweeten the deal with more cash or concessions. In this case though, Uber may walk away from further negotiations because an appeals court has hinted it might overrule a key pretrial ruling in the fight over whether drivers must be treated as employees, the drivers lawyer has warned.
While acknowledging the risk for drivers and Uber if the suit goes to trial, U.S. District Judge Edward Chen concluded the deal was unjust, partly because it low-balled potential claims under California law. He said he also wasnt remain convinced that changing the companys tipping policy would result in the substantially increased income as promised.
If the three-year-old lawsuit breakdowns, the worlds most valuable technology startupwould escape without major changes in its business model or financial sacrifice while keeping 385,000 California and Massachusetts drivers classified as independent contractors. While Uber faces driver suits 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 states comparatively tough labor laws.
Before the court of appeals added a new wrinkle to the California case, the biggest task for drivers attorney Shannon Liss-Riordan was to convince Chen that the agreement she reached with the company in April was 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 overrules a ruling by him that annulled Ubers arbitration agreements in a different instance, it would eviscerate her class action, reducing it to a few thousand drivers. The three-judge panels comments and topics at a June 16 hearing showed that it may be poised to overrule Chen, and even that leaning may give Uber leverage and dramatically decrease her ability to negotiate modifications to the agreement, Liss-Riordan said.
The settlement, mutually agreed by both sides, was fair and reasonable, Matt Kallman, a spokesman for Uber, said in an e-mail.Were disappointed in this decision and are taking a look at our options.
A legal scholar whos been following the example said Uber may now choose its better off trying to force-out the vast majority of drivers covered by the accord into arbitration, where the company can fight them one-on-one.
This order sends the parties back to the settlement table, told Charlotte Garden, an associate professor at Seattle University School of Law. But it seems likely that Uber wont want to go back to the drawing board.
The settlement was rejected partly due to a provision that would have valued potential California labor code violations at only$ 1 million. Liss-Riordan and other lawyers proposed bringing the claims at issue under Californias so called bounty-hunter law. The Private Attorneys General Act, or PAGA, devotes employees the right to step into the shoes of the state labor secretary to bring enforcement actions.
Chen noted in his ruling that a California agency concluded that such penalties in the case before him could amount to more than$ 1 billion, with the settlement providing only 0.1 percentage of the estimated full worth.
Liss-Riordan appears to treat the PAGA claim simply as a bargaining chip in obtaining a global settlement for Ubers benefit, even though the PAGA claim alone is worth more than half of the full verdict value of all claims being released, Chen wrote.
PAGA claims are routinely resolved for a small fraction of their theoretical value, Liss-Riordan said in an e-mail.
It is possible the parties could reach a revised agreement that fulfils the courts concerns regarding the PAGA claims, she said. But if not, as Ive said before, I will take the example to trial and fight my hardest for the Uber drivers.
Uber and Liss-Riordan have been roundly attacked over asserts 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 retrieving nothing for drivers at a trial, she afterwards offered to cut $10 million from her $25 million fee petition and earmark that money for drivers.
Uber agreed as part of the April deal to let drivers solicit tips-off and allot payouts based on the miles theyve driven. Chen questioned whether a broad provision in the settlement releasing the company from liability for violations of labor laws hijacked claims for minimum wages, overtime and workers compensation that drivers are pursuing in other cases.
Liss-Riordan has told the judge that Uber wouldnt going to go along with the settlement without a guarantee of global peace. She said she made a strategic decision to focus on mileage reimbursement and tips-off claims because they were most likely to succeed if the occurrence went to trial.
Ted Boutrous, a lawyer for Uber, said at a court hearing that theres no incentive for Uber to settle without releases extinguishing all asserts stemming from the core conflict over whether the drivers are employees or contractors.
In a separate ruling Thursday, Chen repudiated a bid by opponents of the agreement to replace Liss-Riordan as the lawyer for drivers in the class action.
In July Uber sold its Chinese business to challenger Didi Chuxing. The bargain put Didis value at $35 billion after the acquisition and devoted investors in Uber China a 20 percent stake in Didi. As part of the deal Didi invested$ 1 billion in Uber, valuing Uber at $68 billion.
Uber is the largest private technology startup. Fellow sharing economy company, Airbnb lately filed to raise $850 million at a $30 billion valuation. Chinese smartphone manufacturer Xiaomi Corp ., at $46 billion, is the second most highly valued private startup, according to data from research firm CB Insights.
Lyft Inc ., the largest U.S. ride-hailing company behind Uber, moved a big step closer to sealing its $27 million is being dealt with drivers that leaves them classified as independent contractors on June 23 when its settlement won preliminary acceptance from another magistrate in the same courthouse as Chen.
U.S. District Judge Vince Chhabria in April had repudiated an earlier $12.5 million offer, saying it shortchanged drivers because it didnt properly account for the companys rapid growth. With Chhabrias 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 OConnor v. Uber Technology Inc ., 13 -cv-0 3826, U.S. District Court, Northern District of California( San Francisco ). The Lyft case is Cotter v. Lyft Inc ., 13 -cv-0 4065, U.S. District Court, Northern District of California( San Francisco ).
Read more: www.bloomberg.com