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Court said arbitrator must decide if drivers’ agreements are enforceable
Uber Technologies got a big break Sept. 7 when a federal appeals court ruled that disputes with two former drivers should be sent to arbitration (Mohamed v. Uber Techs. Inc., 9th Cir., No. 15-16178; Gillette v. Uber Techs. Inc., 9th Cir., No. 15-16181).
Judge Edward Chen of the U.S. District Court for the Northern District of California had determined that drivers' arbitration agreements were unenforceable and that the drivers could proceed in court with their individual and class-action claims.
However, the 9th U.S. Circuit Court of Appeals largely reversed that decision and held that an arbitrator, not a judge, must decide if the agreements are enforceable.
If they're deemed enforceable, the drivers must individually arbitrate their claims, and that will put an end to their class-action claims.
"The ruling has tremendous significance in all of the other actions pending against Uber," said Jim Evans, an attorney with Alston & Bird in Los Angeles. "State and federal courts are likely to give this decision great weight in determining whether to send the individual cases to arbitration."
Chen also presides over the closely watched O'Connor case, in which he recently rejected a $100 million settlement agreement that would have covered over 300,000 Uber drivers (O'Connor v. Uber Techs. Inc., N.D. Cal., No. 13-cv-03826).
The Mohamed ruling will undoubtedly be followed in that case because it has the same trial judge, Evans noted.
In separate lawsuits, Abdul Mohamed and Ronald Gillette claimed that Uber violated the Fair Credit Reporting Act when it terminated their driver status based on negative information in their credit reports.
Uber sought to enforce arbitration agreements, but the district court found that the pacts included terms that were unfair to the drivers.
On appeal, however, the 9th Circuit said the district court didn't have the authority to make that determination. The agreements at issue contained a "delegation clause" through which the parties agreed that an arbitrator, not a judge, would resolve disputes between Uber and the drivers—including challenges to the validity and enforceability of the agreements.
A key takeaway from the ruling is that "clauses in arbitration agreements that delegate questions regarding arbitrability to an arbitrator are not unconscionable and, all else being equal, will be enforced," according to Tamara Devitt, an attorney with Haynes and Boone in Orange County and Silicon Valley, Calif.
"Whether employers want the issue of arbitrability to be delegated is a different issue," she said, "but this is generally a good outcome in terms of increasing employers' comfort that arbitration agreements will be enforced according to their terms."
The contested agreements gave drivers 30 days to opt out of arbitration, and the 9th Circuit has previously ruled that such opt-out provisions give the parties a meaningful choice about whether to be bound by the agreement.
"The opinion emphasized that the ability to opt out from an arbitration agreement renders the agreement (and any clause being challenged) procedurally conscionable," Devitt explained.
"Under long-standing precedent, if there is no procedural unconscionability, then the issue of substantive unconscionability need not be addressed because both procedural and substantive unconscionability must be present for an agreement to be unenforceable," she added.
PAGA Claims Proceed
"Although the ruling is very favorable to Uber, the company must still reckon in court with claims for penalties under California's Private Attorneys General Act (PAGA)," Evans said.
PAGA allows private citizens to pursue civil penalties on behalf of the state's Labor and Workforce Development Agency.
The appeals court found that a clause waiving drivers' rights to PAGA claims in one of the agreements was invalid under California law and reinforced California Supreme Court and 9th Circuit precedent, Devitt noted.
Evans said the PAGA claims will still be decided on a collective basis, but 75 percent of any judgment or settlement will go to the state—not the drivers.
"While a ruling enforcing a PAGA waiver would obviously be better news for employers, this is helpful for employers to the extent they already have agreements in place with employees that include a severable PAGA waiver," Devitt added.
Not Good for Drivers
Shannon Liss-Riordan, an attorney in Boston who represents the drivers in the O'Connor case, said the decision isn't good for the class.
"Although it was issued in a different case from mine, the 9th Circuit's decision endorsed Uber's attempt to use its arbitration agreement to avoid a systemic challenge to its classification of drivers as employees through a global class action," she said in a statement. "We were very aware that [the 9th Circuit] decision was likely coming, which was the primary argument for why I was urging the district court to approve the settlement."
"However, the battle is far from over," she said. "We still have the appeal pending in our misclassification case, which raises different arguments, and we still have the possibility of massive PAGA penalties under California law."
Liss-Riordan said more than 1,500 Uber drivers have signed up to pursue individual arbitrations if necessary.
Tips for Employers
"A well-drafted arbitration agreement is still a really important tool for employers to consider using to expeditiously resolve employee claims," Evans said.
"Arbitration of employment claims helps reduce a possibility of runaway jury verdicts, provides employers with greater predictability and less discovery expenses, and avoids the delays and expensive motion practice in court," he explained.
Although federal appeals courts are divided on whether class-action waivers violate the National Labor Relations Act (NLRA), the 9th Circuit has previously held that "an opt-out provision meant there was no basis for a finding that the NLRA was violated by the class waiver," Devitt said.
"As such, employers in California and the 9th Circuit may want to consider including opt-out provisions in their arbitration agreements in order to insulate against a challenge to its arbitration agreement on unconscionability as well as NLRA grounds," she suggested.
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