Uber Rolls Along, Despite Driver Challenges to its Arbitration Agreement

Companies operating in the “on-demand” or “gig economy” have enjoyed tremendous success in recent years, as emerging technologies and shifts in consumer tastes have buoyed their growth. These companies span a cross-section of industries (transportation, food delivery, lodging) but have one thing in common: each aims to deliver traditional services more efficiently by connecting consumers directly with service providers.

But as we all know by now, success often begets legal challenges. Take Uber, for example.  The company has faced a thicket of litigation in recent years, most notably related to the question of whether its drivers are employees or independent contractors.

Like many companies in today’s economy, Uber has implemented an arbitration policy as a way to efficiently resolve disputes. Below we recap some of the developments in this area and preview some legal issues that companies will want to monitor in the months ahead.

Enforcement of Uber’s Arbitration Agreement

A New Jersey federal court recently granted Uber’s motion to compel arbitration, becoming the latest in a growing list of courts that have sided with the company in employment misclassification lawsuits testing the company’s arbitration agreement. Singh v. Uber Techs. Inc., No. 3:16-cv-03044 (D.N.J. Jan. 30, 2017).  In addition to New Jersey, federal district courts in the following states have enforced Uber’s arbitration agreements in similar cases in 2016 alone: Texas, Illinois, Michigan, Ohio, Florida, and Maryland.

The Northern District of California had remained an outlier as the only district court to refuse to compel arbitration. In Mohamed v. Uber Techs. Inc., a case involving allegations related to Uber’s background checks, the district court denied Uber’s motion to compel arbitration, holding that the arbitration clauses were “unconscionable” and internally inconsistent.  109 F. Supp. 3d 1185 (N.D. Cal. 2015).  But that all changed in September 2016 when the Ninth Circuit reversed the lower court’s decision. Mohamed v. Uber Techs. Inc., No. _____, 2016 WL 7470557 (9th Cir. Sept. 7, 2016) (amended Dec. 21, 2016).  There, the Ninth Circuit held that Uber’s arbitration agreement wasn’t unconscionable because it gave drivers the ability to opt out, and that any apparent conflicts in the language in the agreement were “artificial,” such that it was clear that the parties’ intent was to arbitrate.

Although the Ninth Circuit’s ruling was made as part of a limited case concerning background checks, the court’s decision may have a ripple effect through other lawsuits involving Uber, including O’Connor, an independent contractor misclassification lawsuit that grabbed headlines throughout last year.  In August 2016, Uber agreed to settle the O’Connor case for $100 million, but Judge Chen of the Northern District of California rejected the settlement.  As the parties in O’Connor continue to hash out their dispute, the steady march of cases enforcing arbitration, culminating in Mohamed would seem to place Uber in a better position.

Will SCOTUS Put Its Foot on the Brakes?

As we noted last month, the U.S. Supreme Court has agreed to review three conflicting appellate court decisions on the question of whether class action waivers in arbitration agreements violate the National Labor Relations Act (NLRA).  In Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015), the Fifth Circuit rejected the National Labor Relations Board (NLRB)’s position that class action waivers unlawfully interfere with employees’ NLRA rights to engage in concerted activity, agreeing with the Second and Eighth Circuits.  In contrast, the Ninth and Seventh Circuits have ruled that class action waivers violate the NLRA.

With this question affecting the enforceability of arbitration agreements on appeal, Uber and a group of drivers agreed earlier this month to dismissal of a case after a district court judge refused to enter a stay pending resolution of the arbitration issue by the U.S. Supreme Court. New York Taxi Workers Alliance v. Uber Technologies Inc., No. 1:16-cv-08299 (S.D.N.Y. Feb. 1, 2017).

The (Multi-) Million Dollar Question: Independent Contractor or Employee?

Although procedural issues (primarily the questions of arbitrability and class waivers) have been in the driver’s seat since this wave of litigation began, the most pressing question for Uber and other “gig economy” participants remains what courts will make of the merits of plaintiffs’ misclassification arguments. Although federal courts haven’t had much of a chance to weigh in on substantive issues, we may have gotten a glimpse of where things are headed with the decision by a state appeals court in Florida.

On February 1, 2017, the Third District Court of Appeal upheld a state agency decision concluding that a former Uber driver was not entitled to unemployment compensation because he was an independent contractor rather than an employee.  See McGillis v. Department of Economic Opportunity, No. 3D15-2758 (Fla. 3d DCA).

Although the court limited its focus to Florida state law, there are a couple of insights worth noting.

First, the court stepped back to acknowledge the unique nature of the legal issues at hand, recognizing that “we must decide whether a multi-faceted product of new technology should be fixed into either the old square hole or the old round hole of existing legal categories, when neither is a perfect fit.”

Second, the court addressed the critical question of whether the putative employer exercised sufficient control over the plaintiff. Citing the state agency’s analysis with approval, the court found:

As a matter of common sense, it is hard to imagine many employers who would grant this level of autonomy to employees permitting work whenever the employee has a whim to work, demanding no particular work be done at all even if customers will go unserved, permitting just about any manner of customer interaction, permitting drivers to offer their own unfettered assessments of customers, engaging in no direct supervision, requiring only the most minimal conformity in the basic instrumentality of the job (the car), and permitting work for direct competitors.

Time will tell whether this analysis is embraced by other courts—and whether courts or arbitrators will make key decisions about the shape of alternative workplace.