United States: When $100 Million Just Isn't Enough – Court Rejects Uber's Proposed $100 Million Class Action Settlement As Not Fair, Adequate And Reasonable

In O’Connor v. Uber Technologies, Inc., U.S.D.C. N.D. Cal. 13-cv-03826-EMC, and Yucesoy v. Uber Technologies, Inc., case no. 15-cv-00262-EMC, on August 18, 2016, District Court Judge Edward M. Chen denied plaintiffs’ motion for preliminary approval of a proposed class action settlement. Plaintiff in O’Connor alleged that Uber misclassified its drivers as independent contractors rather than employees and denied them rights provided under California’s Labor Code. For example, if the drivers are employees they would be entitled to be reimbursed for expenses such as gas and use of their vehicle. Plaintiffs also claimed Uber failed to remit gratuities as required by Labor Code § 351. Plaintiffs alleged this same conduct violated California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.

In September 2015 the court first certified a class including approximately 8,000 drivers out of an estimated 160,000 California drivers. Later the court ruled that an arbitration provision was unenforceable because it purported to waive claims under California’s Private Attorneys General Act of 2004 (PAGA), and the attempted waiver was invalid as a matter of public policy. As a result of that ruling, on December 9, 2015 the court re-visited class certification and certified a much broader class that included over 240,000 drivers. (On April 5, 2016, the Ninth Circuit Court of Appeals granted Uber’s petition for permission to appeal the December 9, 2015 class certification ruling. Uber also filed a motion to stay proceedings in the trial court pending the ruling on that appeal.)  

After three years of contentious litigation and on the verge of trial, the parties entered into a Settlement Agreement. Under the Settlement Agreement, Uber agreed to pay $84 million plus an additional $16 million contingent on an initial public offering reaching an agreed valuation. The agreement allowed Plaintiffs’ counsel to seek a fee and expense award up to 25% of the Settlement Fund ($21 to $25 million), but during the approval process Plaintiffs’ counsel agreed to reduce her fee request by $10 million, thus resulting in an additional $10 million for distribution to the class. As part of the settlement Uber also agreed to certain non-monetary relief. This included publishing a deactivation policy only allowing deactivation of drivers for cause, providing for a Driver Appeal Panel, and other grievance review procedures.

The Settlement Agreement covered all drivers in California and Massachusetts who used the Uber App from August 16, 2009 up to the date of preliminary approval. Although the O’Connor and Yucesoy actions only alleged claims based on expense reimbursement and payment of tips, the Settlement Agreement called for a broad release of all claims based on or reasonably related to the employment misclassification claim, i.e., overtime, minimum wage, meal and rest breaks, and workers’ compensation. As a result of the broad release the settlement would effectively terminate 15 other pending suits. Another part of the agreement is that it would settle all civil penalties potentially due under PAGA. The Settlement Agreement allocated $1 million to settlement of the PAGA claim.

In ruling on the motion for preliminary approval of the settlement, the court recognized that its task was to decide whether, taken as a whole, the proposed settlement is “fundamentally fair, adequate, and reasonable.” The court concluded that “close review is particularly warranted where Plaintiffs seek to add new claims and drivers not previously certified, and the settlement would settle not only the instant case but claims brought in at least fifteen other pending lawsuits for relatively modest value.” The proposed settlement drew numerous objections (including from plaintiffs’ counsel in the other actions who would see their own cases effectively terminated – with no attorneys’ fees to them – if this agreement was approved).

In assessing the settlement the court recognized that both sides faced significant risks if the case did not settle. For example, both sides were at risk of an adverse ruling by the trier of fact on the key misclassification issues. Prior to that there was also risk to the class that the Court of Appeals could reverse the district court’s rulings on the enforceability of the arbitration provision and/or class certification.

Because it was unclear whether the contingent $16 million payment would be triggered, the court analyzed the settlement assuming only the $84 million monetary component would be paid. The court concluded, “looking solely at the monetary relief, the settlement of $84 million constitutes about 10% of the full verdict value of the non – PAGA claims – i.e. a 90% discount off the verdict value of the non – PAGA claims.” “[T]he Court would be inclined, after weighing the Hanlon factors, to find the consideration afforded by the settlement to be adequate for release of the non – PAGA claims.”

What tipped the scale against approval of the settlement is that Plaintiffs’ counsel had previously argued that the PAGA claim alone could result in penalties over $1 billion. The California LWDA agreed that the verdict value of the PAGA claim exceeds $1 billion and expressed concern that Plaintiffs proposed to allocate only $1 million to the settlement of the PAGA claim – “0.1% of its estimated full worth.” The court ruled, “[t]he parties have failed to demonstrate how the Hanlon factors or any other coherent analysis justifies settling the PAGA claim for such relatively meager value.” The court commented, “Plaintiffs appear to treat the PAGA claim simply as a bargaining chip in obtaining a global settlement for Uber’s benefit, even though the PAGA claim alone is worth more than half of the full verdict value of all claims being released.” The court concluded, “viewing all the claims combined (PAGA and non – PAGA), the Settlement Agreement yields less than 5% of the total verdict value of all claims being released … . The settlement as a whole as currently structured is not fair, adequate and reasonable.” For this reason, the motion for preliminary approval was denied.

Few class actions proceed to trial when the risks faced by both sides are as large as in this case. Time will tell whether this is one of the rare few cases that make it to trial or whether the parties return with a new settlement for the court to consider.

Going forward it will be interesting to watch how allocation of settlement proceeds is handled for PAGA claims. There are some signs that LWDA is becoming more a more active participant in pending litigation and may itself oppose approval of wage and hour class action settlements where the state views too little of the settlement being allocated to the PAGA claim. Seeing how plaintiffs’ counsel’s arguments that the PAGA claim alone could be worth a billion dollars came back to derail an effort to settle that claim for much less, another ripple effect of this high profile ruling may be that counsel shy away from grand valuations of PAGA claims during the litigation process.  

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.