Technicality Ties Up Uber

By Lauren Weber As Uber Technologies Inc. faces a pair of court challenges that raise big questions about the way it classifies, pays and vets the 300,000 drivers offering rides through its app, the cases may hinge on what many would call a legal technicality.In the agreement all Uber drivers must sign to start work, the company asks workers to agree to resolve disputes through arbitration rather than the courts, and bars them from joining class-action suits against the company. Though drivers can opt out, an overwhelming majority sign on, and Uber is now fighting a series of court decisions that question the validity of its arbitration policies.The stakes are high for the company, which at a $51 billion valuation, is today the world’s richest venture-backed startup. Should Uber lose a court trial, the decisions will likely force the firm to change the way it does business, including the independent-contractor labor model that has made it so profitable.The ride service has appealed California federal Judge Edward Chen’s decisions in two cases filed by drivers. In one, Gillette v. Uber, the judge in June declared the firm’s arbitration policy unenforceable, and said that drivers could continue with their case in court. In the second, O’Connor v. Uber, whose lead plaintiffs had opted out of the arbitration policy, Judge Chen decided in September that the case could proceed as a class action and could include drivers who had signed an early version of the arbitration policy. Both of the appeals will be reviewed by a panel of judges on the Ninth Circuit Court of Appeals.The legal wrangling highlights the increasing importance of arbitration clauses for big businesses. Arbitrations tend to favor employers, and when workers prevail, they receive smaller awards than they do in court, according to research by Alexander Colvin, a professor at Cornell University’s ILR School.While companies say arbitration allows them to resolve issues more quickly and efficiently than litigation, advocates and attorneys for workers worry that such policies help companies keep abuses under wraps and discourage workers from speaking up about alleged wrongs on the job. Class-action waivers in employment agreements have been booming since 2011, when the U.S. Supreme Court ruled that the provisions are generally enforceable.Judge Chen has written critically about Uber’s arbitration policy, suggesting that workers often don’t know what they are signing on for and that the company placed undue burden on drivers who want to opt out.He has also asked for revisions to the company’s policy, leading to a change that brought a notice of the arbitration policy to the first page of the driver agreement, where it appears in boldface, oversize type. Uber disagreed with many of the judge’s conclusions, but complied with what it called Judge Chen’s “unnecessary changes.” An Oct. 21 court filing submitted by Uber noted that the judge had “line edited portions” of its policy.Nonetheless, Judge Chen still determined that the 2014 driver agreement remained so unfair to workers as to be unenforceable, for a host of technical reasons.In an appeals court brief in the Gillette case, the company accused Judge Chen of “sheer hostility toward arbitration” and asked the panel to override his decision and compel drivers into arbitration.The arbitration issues have slowed down the suits as the parties argue over whether the cases should ultimately land in court or be certified as class actions, and, if they clear those hurdles, the scope and size of the potential classes. The appeals court hasn’t set a date for oral arguments.Cornell’s Mr. Colvin, who has been following the cases closely, said Uber’s aggressive defense of its arbitration policy is “revealing,” because individual arbitration decisions are rarely made public.“It’s really a defensive strategy to try to protect themselves from outside scrutiny,” he said.Reached Thursday, Uber’s attorney, Ted Boutrous, disagrees with that view, and said the company is willing to go to court to litigate the claims of drivers who declined to sign its arbitration policy. Write to Lauren Weber at lauren.weber@wsj.com

RSS Business Feeds