Natalie Alameddine and Caroline Powell Donelan
Last week, in a significant blow to claims that gig economy workers are entitled to pursue disputes on a class or collective basis, and possibly whether those workers will be able to establish that they are employees and not independent contractors, a three-judge panel of the Ninth Circuit Court of Appeals unanimously decertified a class of 240,000 Uber drivers. The decision in O’Conner v. Uber is a victory for the ride-share company, which will now be able to defend claims that it misclassified employees as independent contractors on an individual basis—one arbitration at a time.
For the past five years, there has been an ongoing and contentious dispute over whether Uber drivers (and similarly, Lyft and other ride-share drivers) are independent contractors or employees. If the workers are deemed to be employees, Uber could face hundreds of millions of dollars in alleged California labor code violations and business expense claims. To combat the possibility of having to litigate this issue on a class-wide basis, Uber entered into arbitration agreements with each driver, requiring that any driver’s claims be arbitrated and that each case had to be arbitrated individually (rather than as a class action).
The court’s validation of Uber’s arbitration agreement, and reversal of the lower court’s 2015 certification of the class of drivers, is consistent with the United States Supreme Court’s May 2018 ruling in Epic Systems Corp. v. Lewis, in which the Court confirmed the validity of arbitration agreements that contain class action waivers.
While employee-side attorneys have regularly argued that arbitration agreements containing class or collective action waivers are unconscionable and/or violate the Section 7 rights of employees under the National Labor Relations Act, O’Conner is consistent with recent decisions at the federal level which demonstrate the judiciary’s commitment to stand by the legislative intent of the Federal Arbitration Act and compel litigants to abide by their agreements to arbitrate. Indeed, amid a flurry of new legislation aimed at giving teeth to the #MeToo movement, California Governor Jerry Brown vetoed a controversial “arbitration bill” (Assembly Bill 3080) this week that would have effectively rendered such agreements unlawful by statute.
Time will tell how workers will respond to this ruling. Plaintiffs’ attorneys are nothing if not enterprising, so it is possible that hundreds, if not thousands, of individual arbitrations may be filed on behalf of gig economy workers claiming to be employees.
While O’Conner v. Uber gives employers further comfort in implementing arbitration agreements containing class action waivers, we caution California employers to remain mindful of the California Supreme Court’s decision with respect to “representative” claims brought under the state’s Private Attorneys General Act (“PAGA”). PAGA authorizes private citizens to file lawsuits to recover civil penalties for labor code violations on behalf of themselves, other “aggrieved” employees, and the State of California. So long as representative employees have suffered at least one labor code violation, they are even permitted to bring claims on behalf of other aggrieved employees for labor code violations that they have not personally suffered. Currently, PAGA claims cannot be forced into arbitration in light of a prior case (Iskanian v. CLS Transportation Los Angeles, LLC (2014)), meaning employers in the Golden State continue to face an uptick in representative PAGA actions notwithstanding the existence of otherwise enforceable agreements requiring disputes be resolved by individual arbitration.