The Uber Settlement Is Only the Beginning

April 27, 2016
Guest Post

by Catherine Fisk, Chancellor’s Professor of Law, University of California, Irvine School of Law           

Although it has been widely reported that Uber has agreed to settle class action suits by drivers in California and Massachusetts, it is far from clear that the settlement will be approved or that, even if it is approved, it will resolve the question of the employment status of Uber drivers. And it seems fairly clear that the settlement does not protect some drivers from poor working conditions.

The two class actions allege that Uber misclassifies its drivers as independent contractors and thereby deprives them of the right to receive tips, minimum wage, overtime, and reimbursement for the expenses they incur (like the cost of the vehicle, insurance, and gas). The settlement agreement stipulates that, in exchange for payments totaling between $84 and $100 million and Uber’s agreement to modify the way it eliminates drivers from its program and to meet regularly with elected representatives of the Uber Driver Association, the plaintiff classes will abandon their claim that they are employees rather than independent contractors.

Uber has touted the settlement as a major victory in its effort to keep its drivers as independent contractors rather than employees. If the settlement is approved, it would be a temporary victory on that issue. Another judge recently rejected a proposed settlement of a similar action brought by Lyft drivers because the judge found the agreement on damages failed adequately to compensate the plaintiffs, but in his order rejecting the settlement the judge said that he would accept a settlement that did not provide that drivers were employees.

But Uber’s legal troubles over the employment status of its drivers will not end even if Judge Chen accepts the settlement, and there is no assurance that he will. Objections to the proposed settlement have been filed by other lawyers who represent some of the class members and who were apparently not involved in the settlement negotiations. And, of course, drivers who started working for Uber after the period covered by the suit are not among the plaintiffs in the class. Therefore, the settlement agreement will not foreclose them from suing for misclassification.

One source of uncertainty is the legality of the Uber Driver Association. Although the settlement agreement insists the Uber Driver Association isn’t a union, the National Labor Relations Board might disagree. The settlement agreement states that drivers will vote for leadership of the Association and Uber will meet monthly with those elected leaders to discuss driver concerns and how Uber might address them. That sounds like the kind dealing with employee representatives that is an unfair labor practice under section 8(a)(2) of the National Labor Relations Act if the employer dictates, as this settlement agreement does, the form of employee association.

A section 8(a)(2) charge against Uber for creating a company union may not happen, however, because the Teamsters announced that it will channel its ongoing organizing campaign of Uber drivers through the Driver Association created by the settlement agreement.

Of course, if the Uber Driver Association gained enough driver support to force Uber to bargain over the rates drivers are paid, Uber might disavow the Uber Driver Association. If it did so, one might argue that it is reneging on a term of the settlement agreement. More important, if Uber refused to negotiate with the Driver Association, it might spark a strike or perhaps an unfair labor practice charge. Uber might object that drivers enjoy no labor law rights to bargain collectively because drivers are independent contractors who have no right to unionize.

But if drivers have no right to bargain collectively, then Uber should also have no right to unilaterally set the prices drivers can charge to passengers. And this is another source of uncertainty. Uber has been sued in federal court in New York asserting that its practice of fixing the prices drivers can charge is an antitrust violation. The suit seeks to be a class action on behalf of all Uber users nationwide. Federal District Judge Jed Rakoff has denied Uber’s motion to dismiss and set the case for trial in December.

The theory of the antitrust suit is that Uber’s price-setting algorithm, which Uber’s CEO claims mimics the market by increasing prices when demand for Uber rides is higher than the supply of Uber drivers, in fact is simply a way for Uber to gouge consumers because it prevents Uber drivers from negotiating with riders over a price.

If Uber drivers were employees, there would be no antitrust problem because Uber, like all companies, is free to set the price for the services its employees provide. It’s just not free to set the price at which independent contractors compete with each other to provide services to the public.

The settlement of the O’Connor class action may have been spurred by the plaintiffs’ lawyers’ sense that the money and the changes to the deactivation policy were the best they could get, especially given that the Ninth Circuit had recently ruled that it would hear an interlocutory appeal of Judge Chen’s ruling. And Uber presumably wants the extent of its liability in this action, the biggest misclassification action it currently faces, resolved so that the valuation of the company in its anticipated IPO can be determined.

But these parties cannot have the last word on whether Uber drivers are employees. The California Labor Commissioner has found that Uber drivers are employees, and that decision may survive on appeal regardless of this settlement. Some local governments around the country are looking at whether Uber drivers are obligated to pay taxes as independent contractors. After all, a fleet of Uber cars causes wear and tear on roads that taxes are intended to cover, just as taxi companies pay fees to cover certain costs of their business that otherwise the public must bear. And if Uber faces a huge antitrust liability for price fixing, it may decide to reconsider whether the labor costs of paying its drivers according to the law and reimbursing their expenses are something that can be passed onto consumers, thus internalizing the full cost of running a transportation business.