How Gig Economy Is Using Private Arbitration to Win on Labor Classification

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Sharing economy workers’ best shot at suing to rewrite the rules of their employment may soon pass them by.
As judges last Thursday considered settlements that will leave Uber Technologies Inc. and Lyft Inc. drivers as independent contractors, two of the biggest names in the on-demand economy are likely to avoid policy changes that would force them to rethink their business models.
Uber and Lyft can also keep using a play borrowed from the traditional economy by requiring drivers to take disputes to private arbitration rather than court. Such agreements, coupled with provisions blocking workers from using the leverage of class action lawsuits like the ones filed by Uber and Lyft drivers, are now ubiquitous among U.S. employers. The drivers’ cases were allowed to proceed only because their lawyer found holes in earlier versions of company contracts.
The ride-share companies have since closed those gaps. That means Uber’s $100 million settlement with 385,000 current and former drivers in California and Massachusetts and Lyft’s $27 million agreement may mark the last of such courtroom battles in the U.S. Uber’s revised driver contracts have already allowed it to smother similar challenges in Arizona, Ohio, Florida and Maryland, with federal judges in those states upholding its arbitration agreements this year.
“What the Uber settlement really demonstrates is that the solution to the misclassification of workers as independent contractors cannot be in the hands of private attorneys,” said Beth A. Ross, an employment lawyer who settled a case against FedEx Corp. on behalf of about 2,000 drivers for $227 million. “If a company like Uber can avoid public enforcement of California’s employment laws through arbitration agreements, where does that leave workers for whom those laws were passed? The only solution is legislation and governmental regulatory enforcement.”
One such bill has languished in Congress. Senator Al Franken last year attempted to revive the Arbitration Fairness Act, which would rein in mandatory arbitration in employment and consumer cases. The Minnesota Democrat introduced the bill in 2011. Related legislation was proposed in February by Senator Patrick Leahy, a Vermont Democrat.

Settlement Objectors

Meanwhile, the fight in two San Francisco courtrooms isn’t over just yet.
Objections to Uber’s settlement with its California and Massachusetts drivers have been collecting for weeks in preparation for U.S. District Judge Edward M. Chen deciding whether to give the deal a preliminary stamp of approval or send lawyers back to the negotiating table.
Uber, whose $62.5 billion valuation makes it the biggest sharing-economy company, agreed as part of the deal to let drivers solicit tips and allot payouts based on the miles they’ve driven. The accord also prohibits Uber from firing drivers without a reason, relying on a two-step process for terminated drivers to appeal their dismissal through peer review.
The judge has revealed some of his worries about the deal, including whether signs saying drivers accept tips could lead to lower customer ratings and, as a result, deactivation by Uber. Chen also ordered the drivers’ lead lawyer, Shannon Liss-Riordan, to further justify her 25 percent share of the deal by detailing the hours worked by her and her staff.
Critics, including the driver whose name is listed first in the case, have filed more than 30 objections, far more than the handful filed in some other class actions. That reflects the intense interest among lawyers and academics as well as drivers, some of whom planned to protest Thursday outside the federal courthouse.

Sell-Out Accusation

Some of the drivers accuse Liss-Riordan of selling them out for the sake of her own fees. More importantly, they say, she failed to deliver on the lawsuit’s core purpose — to give them the protections enjoyed by employees.
One concern shared by Chen is whether Liss-Riordan and Uber are improperly trying to release the company from claims in other lawsuits that weren’t part of the dispute before him.
According to one objector, the settlement seeks to co-opt the claims of 16 different lawsuits “because Uber wants a global release of employment claims against it in two states in one fell swoop.”
Liss-Riordan said the settlement is a good one when weighed against the risk of losing a trial that was set for this month or the danger an appeals court would wipe out an earlier victory that allowed drivers to sue as a group. Either way, drivers might have been left with nothing.
“The case was at risk of being gutted,” she said. “I believe the settlement was in the best interests of the class, in light of the risk we faced of having the case pulled out from under us.”

Heartfelt Notes

More than 2,500 drivers have contacted her office, Liss-Riordan said. While most simply wanted to know when they would get their money, some wrote heartfelt thank you notes, she said.
Even if Chen rejects the settlement as unfair to drivers, no one expects the company to budge on keeping them independent contractors and requiring private arbitration.
Ted Boutrous, a lawyer for Uber, said the settlement is fair, generous and, combined with the non-monetary compromises, is “particularly significant in a case where we believe the class action should not have gone forward at all.”
Boutrous has argued throughout the case that under federal law, Uber is entitled to enforce arbitration to avoid the time, expense, and inefficiencies of traditional litigation. In December, Uber made its driver agreement “bullet proof” by addressing “every single concern” Chen expressed about it, he said. “Our arbitration agreement is state of the art, plus more.”
An appeals court’s decision to review Chen’s rulings that Uber’s arbitration agreements were unenforceable and allowing a class action was “monumental,” Boutrous said. “Uber had the stronger hand in the case,” he said.

Lyft Revision

Liss-Riordan, who also represents Lyft drivers, originally reached a $12.5 million deal with the second-biggest ride-share company in the U.S. After U.S. District Judge Vince Chhabria said that amount would shortchange drivers, Liss-Riordan came back with the $27 million agreement that was considered by Chhabria Thursday.
If the judge approves that sweetened deal, 163,000 current an former California drivers will be told they can claim their share of the settlement, object to it, or opt out. In any event, the agreement will allow Lyft to continue treating its drivers as contractors.
As a result, workers pressing their cases in court must also push lawmakers for a change at the Supreme Court or legislation to improve their lot, said Katherine Stone, an employment law professor at the University of California at Los Angeles.
“The question of whether they’re employees or not is now being relegated to private, invisible arbitration tribunals,” she said. “Even if one wins, it doesn’t affect how the others are decided. It becomes a roll the dice situation.”