Menu Close

Uber won a courtroom victory on Wednesday when an appeals court ruled that drivers are subject to individual arbitration in a lawsuit over background checks, a ruling that might help the ride-hailing company fend off another costly class action lawsuit filed by its drivers.

While the Ninth U.S. Circuit Court of Appeals found that agreements signed by two former drivers for the service over background checks “clearly and unmistakably” require legal disputes be settled by a private arbiter, the reasoning may be applied to another class action lawsuit filed by drivers over the company’s employment classifications.

Uber agreed to settle that classification lawsuit earlier this year — an agreement that was rejected by a federal judge last month. Arbitration is a method frequently used by companies for resolving legal conflicts outside of the court system.

Uber Technologies Inc.’s message to the judge who was asked to approve its $100 million settlement with drivers last month was clear: take it or leave it. Bloomberg reports there is an escalating game of courtroom brinkmanship, Uber has hit what was an impasse with U.S. District Judge Edward Chen who presides over the federal class action suit pending in San Francisco, its demand that, as part of the deal, he erase his own order intended to protect the ride-hailing company’s drivers.

And indeed Judge Chen rejected the proposed settlement in August. Uber drivers contended in the lawsuit they should be deemed employees and reimbursed for expenses such as gasoline and vehicle maintenance. Those expenses are now borne by the drivers. The proposed settlement would have kept drivers classified as independent contractors. Several drivers who were part of the class filed objections with the court, particularly because the proposed amount was well below the total potential damages in the case of roughly $850 million.

In an order handed down last August in San Francisco, US District Judge Edward Chen said that, despite changes to its policies that Uber was ready to enact, the proposed settlement on the whole “is not fair, adequate, and reasonable.” Had it been approved, the agreement would have impacted about 385,000 Uber drivers California and Massachusetts involved in the class-action suit.

The U.S. 9th Circuit Court of Appeals in San Francisco said with Wednesday in the published case of Mohamed v Uber Technologies that drivers who signed up with Uber in 2013 and 2014 must go to arbitration, not the courts, to resolve disputes with the company. Judge Chen previously ruled in the companion classification case that the arbitration agreements were unenforceable and unconscionable. But the appeals panel said Chen lacked the authority to make that call because the contracts require an arbiter to decide “all matters.”

The ruling on Wednesday applies directly to two drivers’ challenge of Uber’s background-check practices in a proposed class-action lawsuit. But it could have an effect on dozens of lawsuits across the nation. Uber drivers have used the threat of a class-action lawsuit to extract concessions from the San Francisco company. Having to go to arbitration largely takes the specter of mass litigation off the table.

Now, Uber could drop the settlement talks altogether in the classification case because the appeals court could go on to unwind Chen’s certification of a class of drivers, forcing most of the drivers to individual arbitration. One-one-one fights typically result in smaller benefits for complainants. The class currently includes some 240,000 drivers from California and Massachusetts. If the arbitration agreements are enforced, the class could be reduced to 8,000 people – those who had rejected the arbitration agreements when they joined Uber’s driver roster.