Uber Technologies Inc. scored a legal victory over drivers on Tuesday after a federal appeals court dismantled the class-action status of a lawsuit that sought to reclassify independent contractors as employees, with possible broader implications for the so-called gig economy.
A panel of judges at the U.S. Ninth Circuit Court of Appeals ruled that some 240,000 ride-hail drivers who had sought to be certified as a class to challenge their worker classification would have to pursue their claims individually in arbitration. The judges found that Uber’s contract with drivers requiring private arbitration was binding, after a lower district court had found that Uber couldn’t compel its drivers to pursue arbitration.
The closely watched case has been snarled in the federal courts for years after drivers in 2013 first sued San Francisco-based Uber, claiming they should be classified as employees—which would allow them to receive compensation for expenses such as fuel, vehicle insurance and maintenance.
Shannon Liss-Riordan, the attorney representing drivers in the case known as O’Connor v. Uber Technologies Inc. et al., said she was disappointed with the ruling, but that she may appeal to the full Ninth Circuit.
“We have, unfortunately, been long expecting this,” she said. “Thousands of drivers have already signed up for individual arbitration. If Uber wants to resolve these disputes one by one, we are ready to do that—one by one.”
An Uber spokesman said the company is “pleased with the court’s decision.”
How Uber and other gig-economy companies classify their workers has been a hot-button issue for years. Their business models depend on workers assuming labor costs, such as health insurance and equipment maintenance, that are typically paid by employers.
While many such workers say they appreciate the flexibility of setting their own hours, they also forfeit the stability of hourly wages and other benefits. Changing contract workers to employees could drive up costs for gig economy companies by 20% or more by some estimates.
The O’Connor case reached a settlement in 2016, but a federal judge rejected the terms, which included around $100 million in payouts and a pledge by Uber to revise its practice of deactivating drivers from its app without warning or recourse. The judge said the settlement proposal was “not fair, adequate, and reasonable.”
Uber’s rapidly growing business of connecting drivers to passengers on a smartphone app has often put it at odds with drivers over pay and benefits. In the past year, Uber has sought to mollify drivers by offering them such things as extra payments for lengthy wait times and in-app tipping.
The company also faces pressure from some cities to boost pay. Last month, New York City passed legislation that would set a minimum wage for drivers, and Seattle is also considering a minimum-wage threshold.
Write to Greg Bensinger at email@example.com
Corrections & Amplifications
A federal judge rejected the terms of a proposed settlement between Uber and its contract drivers. An earlier version of this article incorrectly said the drivers rejected the terms. (Sept. 25, 2018)