Uber has transformed the transportation industry – offering reliable and economic trips with the tap of a smart phone. In part, its success is due to its arms-length relationship with drivers, who remain self-employed while securing customers from Uber’s proprietary software application.
Uber drivers are required to formally apply and agree to Uber’s policies and procedures. As part of the application process, they are provided dispute resolution agreements, which require disputes to be resolved in private arbitration rather than in court. In addition to mandating arbitration, the agreement requires drivers to bring claims on an individual basis only, meaning that class actions or other representative actions are prohibited. Most drivers automatically accept the option.
Notwithstanding their signed agreements, various disgruntled drivers with claims arising from their pay and working conditions have filed claims against Uber in state or federal court. These drivers have not only sued on their own behalf, but several have asserted class-based claims – ignoring the class action waiver in Uber’s agreements. The drivers contend the agreements are unfair and unenforceable. Given the millions of dollars in potential claims, Uber has fought hard to enforce its arbitration agreement and the class action waivers. However, as heavily covered in media reports, a federal judge in San Francisco ruled last December that the agreement was invalid. Rather than give up on arbitration, Uber immediately issued revised arbitration agreements, asking all drivers to sign them. This second agreement was likewise challenged and its validity is also in question.
Why has Uber’s arbitration policy been so difficult to enforce? The explanation provides lessons for all California employers relying on arbitration polices to resolve employment disputes.
San Francisco Federal Judge Found Substantial Defects in the Initial Arbitration Agreement
First, the agreement itself was not a stand-alone document, just the final few paragraphs of a 15-page “Services Agreement.” Courts disapprove of arbitration agreements that are easily overlooked. So, lesson one from Uber: the agreement should be obvious, in bold lettering in a stand-alone document.
Second, the agreement prohibits workers from bringing representative claims under the Private Attorneys General Act (PAGA), which allows a worker to seek certain Labor Code penalties on behalf of the state. The California Supreme Court has recently ruled that arbitration agreements cannot force employees to give up their rights to bring a PAGA claim. So, lesson two from Uber: arbitration agreements must be revised to keep up with Supreme Court pronouncements.
Third, to decline arbitration, a worker was required to opt out by sending notice via overnight mail to the attention of Uber’s general counsel. The court found this unfair as workers were bound by the agreement – regardless of their failure to sign it or to affirmatively agree to it. So, lesson three from Uber: arbitration agreements are not enforceable unless they are signed. An opt-out option is insufficient.
Then Uber Tried Again
In response to the court’s ruling, Uber rolled out a new and revised agreement. The new agreement is separate from the main Uber driver’s agreement. It does not include a PAGA waiver. It requires drivers to indicate their agreement by clicking “I accept” on the on-line version of the agreement. Although it seems to address the court’s concerns, the revised agreement was challenged as a coercive attempt to stop drivers from joining the pending class actions.
The basic argument is that Uber’s attempt to salvage its arbitration policy was too little too late. So, lesson four from Uber: circulating arbitration agreements with employees after a class action has been filed will be challenged. Such agreements may be very difficult to enforce absent compelling evidence of an employee’s knowing agreement to give up his or her right to a court action. With that in mind, employers seeking to roll out new arbitration agreements after the initiation of a class action should consider extra efforts to educate employees about their rights and any pending court actions. Another option to demonstrate knowing acceptance is to sweeten the deal with a nominal payment.
The Outcome (So Far)
In sum, notwithstanding a determined effort and the investment of substantial resources to avoid class actions and litigation in state and federal court, Uber found itself in a losing battle to preserve its preference for arbitration. In fact, in April, Uber all but gave up the fight and asked the Court’s permission to settle the entire dispute. Courts do enforce arbitration agreements and in fact it is considered a favored approach to dispute resolution under federal law, but arbitration cannot be taken for granted. Agreements must be drafted with extreme care and must be re-drafted on a regular basis to ensure compliance with ever-evolving judicial opinions and statutory changes.