In a ruling that Uber immediately appealed, the U.S. District Court overseeing class action litigation by Uber drivers seeking to be declared employees, rather than independent contractors, revisited his earlier ruling certifying a limited class of drivers and broadened the classes to include virtually anyone who has ever driven for Uber in California. Although this ruling does not impact the key question to be resolved in the litigation — the employment status of sharing economy participants — it dramatically raises the financial stakes for Uber and presents a further cautionary tale for lawyers crafting arbitration provisions.
In his prior ruling in O’Connor v. Uber Technologies, Inc., Judge Chen had certified a class limited to drivers who: (a) sought recovery of tips (b) and had not agreed to Uber’s most recent forms of arbitration agreement. He denied Plaintiffs’ request to certify a class seeking reimbursement for costs incurred while driving for Uber — as measured by the IRS mileage reimbursement rate — holding that Plaintiffs’ decision to pursue only certain costs and not others rendered them inadequate to represent such a class. Judge Chen further excluded from the class drivers who had agreed to Uber’s most recent terms of service, which Judge Chen himself had approved and subsequently upheld as enforceable.
In this new ruling, Judge Chen determined that although the arbitration agreement in the Court-approved terms of service may not be unconscionable, the decision to include a non-severable Private Attorney General Act waiver in the terms rendered the arbitration agreement and its class action waiver unenforceable. Based on that determination, the Court certified a subclass of individuals who had agreed to the Court-approved arbitration provision. The Court further held that Plaintiffs’ renewed request for certification of a cost-reimbursement class remedied the prior issues because Plaintiffs now sought recovery of vehicle-related expenses and telephone costs, which represent the majority of costs unreimbursed incurred by drivers.
This most recent decision does not significantly raise the stakes for other sharing economy companies facing similar suits. The primary impact is to potentially increase Uber’s financial exposure. However, the decision should have abroad impact on how companies — not just sharing economy companies — craft their arbitration agreements. If it was not before, it is now quite clear that such provisions must strive to achieve a balance between the rights of the company and the rights of those agreeing to the provision and that aggressively one-sided terms, such as non-severable PAGA waivers, should be avoided.