Why it matters

Uber drivers seeking to be classified (and compensated) as employees and not independent contractors were dealt a blow by the U.S. Court of Appeals, Ninth Circuit when the federal appellate panel reversed class certification and ordered the drivers to arbitration. The litigation began in 2013. Over the years, multiple class actions were consolidated and worked their way through the court system, including making a prior visit to the Ninth Circuit. In that ruling, the panel held that arbitration agreements between the drivers and Uber were neither substantively nor procedurally unconscionable and that the agreements delegated the threshold question of arbitrability to the arbitrator. With that background in mind, the Ninth Circuit granted Uber’s motion to compel arbitration, reversing the district court. The mere fact that the lead plaintiff opted out of arbitration did not bind the other drivers, the court said. In light of this conclusion, the court also decertified the class of approximately 160,000 drivers.

Detailed discussion

Douglas O’Connor and a fellow Uber driver filed a putative class action complaint against the company in August 2013, alleging claims for failure to remit the entire gratuity paid by customers to drivers in violation of California Labor Code Section 351 and for misclassifying the drivers as independent contractors and failing to pay their business expenses (including vehicles, gas and maintenance) in violation of California Labor Code Section 2802.

After several similar suits were consolidated with the original complaint, a California federal court judge certified a class of roughly 160,000 drivers in September 2015.

The court later ruled that the arbitration agreements signed by some of the drivers in 2014 and 2015 were unenforceable on public policy grounds, relying on the California Supreme Court’s decision in Sanchez v. Valencia Holding Co., because they contained a waiver of claims under the Private Attorneys General Act (PAGA).

Uber argued that the nonseverable PAGA waiver didn’t ban all PAGA claims but only prevented such claims from being arbitrated, with the blanket PAGA waiver found in a different section of the agreement that was severable. But the court disagreed.

The defendant appealed to the U.S. Court of Appeals, Ninth Circuit, telling the federal appellate panel that the 2014 and 2015 arbitration agreements featured an opt-out provision and that drivers who failed to exercise this choice should not be permitted to avoid the results. The court agreed and reversed the district court’s denial of Uber’s motion to compel arbitration. The agreements were not unconscionable, the court said, and the relevant provisions in the agreements delegated the threshold question of arbitrability to the arbitrator.

On remand, the district court upheld the class certification order and denial of the motion to compel arbitration for that class. Back before the Ninth Circuit, the federal appellate panel unequivocally ruled that the denial of Uber’s motions to compel arbitration must be reversed, rejecting the drivers’ alternative arguments that the arbitration agreements are unenforceable.

The drivers contended that the lead plaintiffs “constructively opted out” of arbitration on behalf of the entire class, but the court was not persuaded this was possible. “Nothing gave the O’Connor lead plaintiffs the authority to take that action on behalf of and binding other drivers,” the panel wrote, finding that the drivers’ only legal authority—a Georgia Supreme Court decision—relied on state law grounds and did not discuss the Federal Arbitration Act (FAA), which “requires courts to enforce agreements to arbitrate according to their terms.”

Alternatively, the drivers argued that the arbitration agreements were unenforceable because they contained class waivers in violation of the National Labor Relations Act (NLRA). This position was rejected by the Supreme Court earlier this year in Epic Systems v. Lewis, when a divided Court held that employers may require employees, as a condition of employment, to enter into arbitration agreements that contain class or collective waivers.

“In sum, the district court’s orders denying Uber’s motions to compel arbitration … must be reversed,” the panel said. In light of this ruling, the court also decertified the class created by the district court.

“Certification of the class by the district court … was premised upon the district court’s conclusion that the arbitration agreements were not enforceable,” the court explained. “The class as certified includes drivers who entered into agreements to arbitrate their claims and to waive their right to participate in a class action with regard to those claims. … [T]he question whether those agreements were enforceable was not properly for the district court to answer. The question of arbitrability was designated to the arbitrator.”

The panel reversed the denial of the motions to compel arbitration as well as the class certification orders.

To read the opinion in O’Connor v. Uber Technologies, Inc., click here.