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Uber Settlement Is Not Good Enough, Judge Chen Rules

By Casey C. Sullivan, Esq. on August 19, 2016 | Last updated on March 21, 2019

It's back to the drawing board for Uber and thousands of its drivers. U.S. District Judge Edward Chen rejected a proposed settlement between the two yesterday, saying that the agreement falls short of what is "fair, adequate, and reasonable."

The drivers' class action lawsuit alleges that Uber had misclassified its drivers in California and Massachusetts as independent contractors, instead of employees, denying them the protections of state and federal labor laws. The settlement left the question of the drivers status unanswered, in exchange for a potential $100 million payout and some small changes to Uber policy. Chen's rejection of the settlement is a significant blow to Shannon Liss-Riordan, the attorney representing the drivers, who has been criticized for allegedly selling the Uber drivers short.

A Settlement That Would Leave the Law Unsettled

At the heart of the drivers' class action is their employment status. If they are treated as employees by the court, they are entitled to a host of significant benefits, such as lower employment taxes and the right to reimbursements for mileage and gas. For three years of what the court describes as "contentious litigation," the two sides fought it out before Judge Chen.

Then, in April, the two sides agreed to settle. Uber would pay $84 million up front, with $16 million coming if the company does well following an IPO. But the drivers would still be treated as independent contractors, with the main dispute between the parties left unsettled.

A "Substantial Discount"

That settlement did not meet the standards of Federal Rule of Civil Procedure 23(e), which requires, under Ninth Circuit precedent, the court to conclude that the settlement is "fundamentally fair, adequate, and reasonable." The court refused to consider the $16 million IPO bonus when analyzing the settlement, since Uber could not show whether that payout was likely to occur.

The $84 million settlement that remained, Judge Chen wrote, was a "substantial discount" when compared to the drivers' claims. Chen pointed to the case of Barbara Burwick, a former Uber driver who the California Labor Commission had ruled was an employee, not an independent contractor. Burwick was then entitled to nearly $4,000 in unreimbursed expenses. A similar driver under the settlement would get only $455, or just $195 if she was not a class-member.

Liss-Riordan says that she believes the agreement can be modified to address the court's concerns. "But if not," she said, "I will take the case to trial and fight my hardest for the Uber drivers."

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