Photographer: Andrew Harrer/Bloomberg

Uber’s Plan to Keep Driver Complaints Out of Court

The company bets on an arbitration clause in a drivers’ rights case.

Uber says its drivers should enjoy the freedom that comes with setting their own hours, as long as that freedom ends at the courthouse steps. As its California drivers battle to be treated as employees with benefits—rather than independent contractors—the world’s most valuable startup is arguing they can’t go to trial. According to the contracts most drivers signed, Uber says, disputes have to go through private arbitration.

The company’s position has taken on greater importance since a Sept. 1 decision by U.S. District Court Judge Edward Chen in San Francisco. Chen granted class-action status to a lawsuit brought by two Uber drivers seeking reclassification as employees. That means thousands more of the company’s 160,000 drivers in California could join the suit. The drivers are seeking reimbursement for expenses and tips, which would open the door to a minimum wage, meal breaks, workers’ compensation, and unionization. On Sept. 15, Uber asked the U.S. Court of Appeals for the Ninth Circuit in San Francisco to take up “the leading case raising urgent questions about the classification of sharing-economy workers” and reverse Chen’s decision.

In its appeal, Uber continues to argue its drivers aren’t a class because they don’t have set hours or other commitments. It’s also urging the appellate court to overturn Chen’s ruling in a related case last June, which invalidated the arbitration agreements barring drivers from joining class actions. Uber spokeswoman Jessica Santillo declined to comment on arbitration.

The fine print in Uber’s driver contract includes a clause requiring the driver to take disputes to an arbitrator. If the two parties can’t agree on an arbitrator, the mediation service JAMS is supposed to play that part. According to the contract language, Uber and the driver would split the costs of arbitration. JAMS charges a hearing fee of $7,000 per day and a $5,000 retainer fee to start the process.

JAMS spokeswoman Victoria Walsh says her firm hasn’t handled any cases for Uber. In his June decision, Chen ruled that the arbitration agreements are so unfair they’re unenforceable. On Sept. 21, state Judge Ernest Goldsmith came to the same conclusion in a similar case in San Francisco Superior Court.

Uber says the San Francisco case covers fewer than 15,000 of its California drivers, based on Chen’s specifications that eligible plaintiffs must have, among other things, stopped driving for Uber before June 2014 or opted out of the arbitration agreement. But it’s taking the potential threat to its $50 billion business model seriously, says Katherine Stone, an employment law professor at the University of California at Los Angeles. “Uber is coming hard and fast on this, which is appropriate because it has a lot at stake,” she says. Uber is hinging its case on U.S. Supreme Court decisions that have made it “very hard to get out of arbitration agreements anywhere.”

Shannon Liss-Riordan, the lawyer representing the drivers, says forcing drivers into arbitration is a “sneaky tactic” to shield Uber from class-action liability resulting from violations of labor laws, “even if they owe a whole lot of people money.”

If a higher court upends the class action, many drivers will likely have to pay for lawyers upfront or drop their cases. A win for the drivers would encourage other lawsuits demanding that Uber change its business model and set a precedent for other sharing-economy companies. Liss-Riordan has filed similar suits in California against Lyft, courier Postmates, food deliverer Caviar, and cleaning service Homejoy. The latter shut down operations in August, citing the threat of litigation.

In the Uber case, the most important question remains whether the sharing economy is powered by employees or contractors, but the answer depends on whether drivers have the right to take collective legal action, and whether signing the arbitration agreement cost them that right, says Stone, the UCLA professor. The arbitration issue is being “heavily lawyered,” she says, “because each of these are questions that could go either way.”

The bottom line: Uber is appealing its loss in federal court, arguing that drivers signed away their rights to litigate.

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