United States: Uber's $100 Million Settlement Falls Apart

Last Updated: August 24 2016
Article by Richard R. Meneghello and Todd B. Scherwin

In a surprising development, a federal court judge rejected a proposed settlement yesterday which would have seen gig giant Uber pay up to $100 million to resolve a series of legal claims challenging its classification model, characterizing the proposed settlement as "not fair, adequate, and reasonable." While the shelved deal might end up actually helping Uber in the long run, the latest chapter in this long-running class action battle means that all gig companies will continue to live in a world of uncertainty when it comes to the thorny issue of misclassification.

Background: Parties Reached A Tenuous Truce Earlier This Year

As we reported earlier this year, the ride-sharing company Uber reached a preliminary $100 million agreement to settle claims alleging that it improperly classifies its workforce as independent contractors. A pending class action lawsuit filed in California covered about 240,000 current and former Uber drivers who were seeking additional compensation, including being reimbursed for expenses and tips. A companion case was being litigated in Massachusetts alleging similar facts. The trial was slated to take place in June 2016, and a loss could have cost Uber hundreds of millions of dollars.

In April 2016, Uber announced that it had reached a preliminary agreement with the plaintiffs, filing a 153-page proposed settlement agreement outlining the terms of the deal. The arrangement would see the plaintiffs and their attorneys receive a guaranteed payment of $84 million, with the promise of an additional $16 million provided the company's valuation continues to grow through an initial public offering. However, it needed to receive a final approval from the federal judge overseeing the case.

The intervening months have witnessed many warning signs that the deal was on shaky ground. Dozens of class members expressed negativity about the settlement agreement; numerous objectors filed motions with the court requesting that the judge reject the proposal, and at least five motions to intervene were filed by those wishing to formally join the litigation to have their voices heard. Much of the negative attention was focused on the lead plaintiffs' counsel, who stood to earn $25 million in the settlement. At least one person filed a motion to disqualify her from the case, and at one point she agreed to trim her recovery by $10 million.

Yesterday, in a 35-page ruling, U.S. District Court Judge Edward Chen denied the motion for preliminary approval of the proposed settlement, opening the door for the litigation to continue.

Court Acknowledged Significant Risks For Both Sides

The court noted that both sides risked much if they continued to litigate the case. He noted that a pending challenge before the 9th Circuit Court of Appeals could result in the driver arbitration agreements being upheld as valid, which would shrink the California class of drivers eligible to participate in the class action from 240,000 all the way down to approximately 8,000.

Moreover, and more importantly for gig employers, the court noted that several factors existed that could lead a jury to one day decide that the drivers were independent contractors and not employees. For example, drivers are free to choose their own days and hours of work, they use their own vehicles, they can employ others to drive for them, and they signed an acknowledgement whereby they admitted they were not in an employment relationship with Uber.

On the other hand, the court said that Uber would also be risking a great deal by continuing to litigate the matter. "Uber also faces substantial risks of losing on the misclassification question," he said, pointing out that Uber exerts a certain amount of control over drivers while they are on duty which could lead to a jury finding in the plaintiffs' favor.

He cited to another ruling in the similar class action case against Lyft, where the judge said that ride-sharing drivers could be favorably compared to "restaurant workers who work in multiple venues, but only occasionally at each particular venue." There is no doubt, he said, that such a worker would be considered an employee of those restaurants, and therefore it was possible for Uber drivers to similarly be considered employees.

Proposed Monetary Settlement Rejected As "Relatively Modest"

Regardless of the significant risk that might befall both sides if the case continued, and despite the deference that courts typically give to private parties that seek to settle their differences through a mutual resolution, the judge said that the proposed settlement was simply inadequate to satisfy standards of fairness. He noted that he could not consider the $16 million portion of the settlement that was tied to a potential IPO because there was no evidence in the court record to demonstrate the likelihood that the contingency would be triggered.

While $84 million is still quite a large sum, the court noted that the plaintiffs had previously estimated that the total amount of damages they might recover if they prevailed at trial topped $850 million. The court saw no reason why a potential 90% discount would be justified in this case, especially since Uber stood as much of a chance of losing at trial as the plaintiffs did. Moreover, because the plaintiffs also alleged a claim under California's unique Private Attorneys General Act (PAGA), it was possible for the value of litigation to rise to over $1 billion in penalties. For this reason, the court determined that the $84 million was actually "relatively modest" when compared to the potential verdict value.

Proposed Non-Monetary Settlement Was Of "Limited Benefit"

The court also examined the non-monetary portion of the settlement, which the parties hailed as significant. It would have required Uber to alter some of its business practices in such a way that would have resulted in workers being treated more like employees, while expressly ensuring that workers remained classified as independent contractors. Specifically, the proposed deal assured drivers that they could only be removed from service if Uber could show "sufficient cause," and provided drivers with an appeals process and arbitration available if they disagreed. Also, drivers would have been able to elect local leaders to meet with management to dialogue about issues impacting the workforce, and drivers would have the opportunity to collect tips from riders. 

The court disagreed with the characterization of these terms as being game-changers. The judge noted that Uber still would have had substantial control over drivers by retaining the ability to temporarily deactivate their status, limiting the freedom they were claiming to provide. The judge also noted that allowing tips might not be of great value because, unlike Lyft, Uber was not proposing to include an in-app tipping feature. Moreover, public statements from Uber continued to discourage riders from tipping, which the judge felt would diminish the purported value of that aspect of the settlement.

Finally, the court noted that the proposed settlement "does nothing to clarify the status of drivers as employees versus independent contractors."

What's Next For Gig Employers?

The rejection of this settlement means that this case will now continue in federal court, and both sides have been ordered to present a plan for proceeding to trial. Meanwhile, a concurrent argument will continue before the 9th Circuit Court of Appeals regarding the validity of Uber's arbitration agreement, which had been struck down as unconscionable by the trial court.

Many court observers believe there is a good chance that the 9th Circuit may very well reverse the lower court ruling and uphold the arbitration agreements as valid; the questions at a June 16 oral argument seemed to suggest that it may be leaning in Uber's favor. If that happens and the class is reduced in size from approximately 240,000 to 8,000, the value of the lawsuit will be greatly diminished and Uber may actually celebrate the fact that this settlement was scuttled.

Meanwhile, both sides will continue to analyze whether it makes sense to attempt to open up settlement discussions once again in an effort to craft a compromise acceptable to the court, or whether they would rather do battle in court and perhaps one day end up at a jury trial. No matter which path is chosen, gig employers (and others) will continue to focus a keen eye on the matter to determine how it impacts them.

Some questions that could be resolved by this litigation: will the kinds of arbitration agreements typically used by gig employers be upheld by the appeals court? Will the parties attempt to forge another agreement that might further shape the relationship between drivers and the company, thereby helping to clarify the thorny misclassification issue? Will a jury be called upon to render a verdict that may very well play a role in determining the future of thousands of other gig companies?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Richard R. Meneghello
Todd B. Scherwin
Similar Articles
Relevancy Powered by MondaqAI
McLane Middleton, Professional Association
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
McLane Middleton, Professional Association
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions