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 ridehail 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 gigeconomy companies classify their workers has been a hotbutton 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 gigeconomy companies by 20% or more by some estimates.
The O'Connor case reached a settlement in 2016, but a 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.”
BY GREG BENSINGER