A major battle is being waged in California over the business model of ride share companies — and by proxy, the future of the gig economy (we have discussed the ongoing challenges facing the gig economy, especially in California, here and here). This week’s ruling in O’Connor v. Uber Technologies, Inc. marked a significant victory on that front — the Ninth Circuit ruled that Uber’s arbitration agreements with its drivers, which contained a class arbitration waiver provision, were valid and enforceable.
In O’Connor, Uber drivers sued Uber under federal and California state employment laws for unpaid overtime wages, claiming they were misclassified as independent contractors and are actually employees. Uber challenged the lawsuit, in part, by arguing that the arbitration agreements in place with drivers required those drivers to arbitrate their claims. By ruling in favor of Uber, the Court decertified the class and ordered the plaintiffs to pursue their claims in arbitration on an individual basis. In reaching that conclusion, the Court applied the Supreme Court’s recent decision in Epic Systems Corp. v. Lewis to reject plaintiffs’ claim that class waiver provisions in the agreements rendered them unenforceable because they violate the National Labor Relations Act.
Considering the recent Dynamex decision from the California Supreme Court, which altered the independent contractor test under California law to make it easier for plaintiffs to win on misclassification claims, the court’s forcing plaintiffs to individually arbitrate their disputes likely prevented Uber from having to pay a large class settlement or judgment. The ruling drives home the importance of, and value provided by, a good arbitration clause or agreement, especially one which includes a class or collective action waiver. Not only is Uber not required to litigate these claims on a classwide basis, the court ruled the arbitration agreement applied to all of the plaintiffs’ claims — under both federal and California state law. Employers should learn the lesson this case teaches: every company that engages independent contractors should consider including a class and collective waiver provision in any independent contractor contract moving forward.