In a recent decision, the Ninth Circuit Court of Appeals in San Francisco, ruled that private arbitration agreements between Uber and two former drivers in California and Massachusetts were valid and enforceable. The former drivers, who were seeking protections for themselves and on behalf of a proposed class of drivers from Uber’s policies via a lawsuit in the federal courts, are now forced to return to arbitration, where they must seek individual redress. This strikes a heavy blow against Uber drivers in similar circumstances, who seek to be classified as employees rather than as independent contractors.
In Mohamed v. Uber Technologies, Inc., 15-16178, the Ninth Circuit mostly reversed the district court’s decision. The Ninth Circuit held that the arbitrator, not the judge, had been empowered to decide threshold questions of arbitrability, and that such delegation of authority was proper. The court also ruled that the provisions of the agreements between Uber and the drivers were not unconscionable, as the agreements gave drivers the opportunity to opt out of the requirement that all claims be arbitrated.
The court also held that the effective vindication doctrine – which allows courts to invalidate, “on public policy grounds,” arbitration agreements that operate as a waiver of a party’s right to pursue statutory remedies – did not apply in this case. The drivers had argued that the costs of arbitration were prohibitive for an individual to bear, and that, as such, arbitration was not a viable option. However, the court recognized that Uber, per the agreement, had committed to payment of the full costs of arbitration. Accordingly, there was no bar for any aggrieved driver to pursue arbitration.
The former drivers were not left empty-handed, as the court did hold that they would be able to proceed in court with claims brought under California’s Private Attorneys General Act (PAGA), also known as the bounty-hunter law. PAGA allows employees to “step into the shoes” of California’s labor commissioner to bring enforcement actions. It is unclear what implications, if any, this has for drivers in other states.
The decision is an unfortunate one for many drivers. Although the claims litigated in the decision handed down by the Ninth Circuit relate to Uber’s practice of obtaining credit reports as part of the background checks conducted on drivers, the decision has far-reaching implications. By holding that Uber’s agreements with the drivers contain valid arbitration clauses, drivers seeking redress for other claims may have lost the ability to band together in a class action lawsuit. Instead, they must proceed individually, where each driver’s costs will be much higher.
The decision also creates an incentive for Uber to leave the negotiating table in a heavily publicized case – earlier this year, there was active litigation between Uber and Uber drivers who had sought to be classified as employees rather than as contractors. Although the judge overseeing the case had rejected a proposed settlement that both sides had reached, the parties had continued to negotiate. With this new development, it is unclear whether Uber has much incentive to continue to negotiate a settlement, and may well walk away from the table as drivers now have to fend for themselves.