Judge Rejects Uber Class Action Settlement

Are Uber drivers actually employees of the company, or are they individual contractors? At its nascence, the whole point of the sharing economy was that consumers had the freedom to offer a service or product, such as spare room or a drive across town, to gather up some extra cash. The problem with Uber is that drivers started to rely on the ridesharing service as a critical source of income. Uber, in turn, demands what drivers claim an onerous set of rules and time commitment from its drivers. The result has been a flurry of class action lawsuits across the country. Uber offered to settle one class action lawsuit with a $100 million settlement, but last week, U.S. Judge Edward M. Chen for the Northern District of California rejected its terms.

In his ruling on O’Connor v. Uber Technologies, Judge Chen concluded that the settlement as it was structured was not “fair, adequate and reasonable,” despite its nine-figure sum and Uber’s proposed policy changes. In fairness, although the proposed settlement was a sliver of the potential amount that could have cost Uber, Judge Chen said that both parties in this lawsuit still faced considerable financial and legal risks.

Nevertheless, Uber’s reputation as a corporate predator will continue to fester, due to the judge’s rejection of Uber’s proposal that $16 million of the settlement would only apply if Uber reached a certain valuation. Currently Uber’s most recent valuation is $93.75 billion. But Uber’s attorneys requested that portion of the settlement would only be distributed only if Uber’s valuation reached one and a half times its current valuation one year after the firm launches a future initial public offering (IPO).

Let's consider the fact that Uber is one of the Silicon Valley “unicorns” that many analysts say is overvalued, the company still is not turning a profit and any issue and the sale of publicly owned stock would subject the company to even more disclosures and scrutiny. The result would be that the odds of Uber’s drivers seeing that cash anytime this decade hover somewhere between zero and highly unlikely. The judge also noted that Uber did not provide any evidence that such a future valuation was plausible in the near future.

In any event, Uber drivers, who have already claimed they were cheated on gratuities that Uber told riders were included in the price but were allegedly never redistributed to the company’s contractors, the 385,000 drivers in California and Massachusetts who are parties to this lawsuit would not have received much compensation. The average check, if this lawsuit had settled, would have netted drivers less than $260.00, and that figure does not include attorneys’ fees that would have been deducted from those checks. The drivers' compensation would at best have been a few tanks of gas or a servicing of their cars.

The judge’s rejection of the settlement’s terms means that Uber’s drivers are still in legal limbo. Many drivers, knowing a settlement would result in a check from compensating them from what they say are the company’s unfair practices, had declined to participate in the lawsuit. And according to Reuters, Uber could be in for more legal headaches in the aftermath of the decision. The total amount of drivers involved in this case could drop as far as 8,000 because many of them did not opt out of the arbitration clause tucked into Uber’s licensing agreement. That does not mean, however, that they could not become parties to another class action lawsuit in the future.

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