Uber really doesn’t need another legal problem right now.
On June 23, Uber Technologies Inc. is expected to ask a Los Angeles judge to approve a proposed $7.75 million settlement that would resolve all claims brought over the alleged misclassification of its drivers under California’s Private Attorneys General Act of 2004. The act, called PAGA, allows private parties to pursue labor violations under California law.
Lawyers in other driver suits have opposed the settlement, which they claim could wipe out their PAGA claims at little expense to the ride-hailing company.
Last month, Los Angeles Superior Court Judge Maren Nelson asked California Labor Commissioner Julie Su to weigh in on the proposed accord. In a June 16 amicus brief, Su chose not to delve into the particulars of the deal but, at the same time, outlined a number of red flags that the judge should consider.
That didn’t sit well with Uber.
“Simply put, the commissioner’s proposed standards do not establish a level playing field for Uber to settle its claims in the manner that countless other litigants have done since PAGA’s enactment,” wrote Uber’s lawyer, Sophia Behnia, who is of counsel at San Francisco’s Littler Mendelson, in a June 23 response. “In fact, Lyft, which has the same business model as Uber, settled its nearly identical PAGA suit for one million dollars without any comment, opinion or interference from the LWDA or the commissioner.”
Uber criticized the commissioner’s “self-serving comments,” noting that the California Labor and Workforce Development Agency, over which she presides, gets 75 percent of all PAGA settlement payments. The commissioner also failed to acknowledge that the company admitted no liability and that the plaintiffs’ claims prospects at success were dim.
Nelson, who tentatively rejected the settlement in March, is set to hear arguments on final approval this Friday.
Uber attorney Joshua Lipshutz, a partner at Gibson, Dunn & Crutcher who, along with the firm’s litigation group co-chairman Ted Boutrous, has teamed with Littler Mendelson on the case, declined to comment.
The plaintiffs’ attorneys in the case, Douglas Caiafa and Christopher Morosoff, both solo practitioners in the Los Angeles area, did not respond to a request for comment. But in their June 23 response, they called the commissioner’s interpretation of the PAGA “not reasonable and if followed would result in absurd consequences.” They also noted that they brought the case on behalf of the state, not the commissioner, who declined to pursue a case against Uber.
If the judge rejects the deal, it would cap a tough month for Uber.
Its chief executive, Travis Kalanick, resigned in the wake of an internal investigation led by Covington & Burling into allegations of sexual harassment and other forms of discrimination at the San Francisco-based ride-hailing firm.
Covington & Burling’s report came with numerous recommendations to heal Uber’s allegedly toxic workplace culture.
The last thing Uber needs is uncertainty over claims that its drivers were misclassified as independent contractors, rather than employees. But that’s exactly what it has in Price v. Uber, which Uber had hoped would resolve a good chunk of those claims.
“If the settlement gets rejected, which I certainly hope it does, that would be the next move for Uber: How much money do we have to put on the table to get this resolved?” said Brian Kabateck, managing partner of Los Angeles-based Kabateck Brown Kellner who has a case against Uber pending in federal court in the Northern District of California.
Unlike many of the other driver suits, which tacked on class claims, the Price case brought only alleged statutory violations under PAGA. The PAGA claims are critical in the driver suits because the U.S. Court of Appeals for the Ninth Circuit ruled last year that class claims had to be arbitrated.
It’s not the only driver case in which California regulators were asked to participate. Last year, an attorney from California’s Department of Industrial Relations, under which the commissioner works, wrote a letter to U.S. District Judge Edward Chen in the Northern District of California estimating PAGA claims against Uber could be worth more than $1 billion. The letter was a key factor in Chen’s decision to reject a proposed $84 million settlement, of which $1 million involved PAGA claims.
The plaintiffs’ attorney in that case, Shannon Liss-Riordan, has moved to intervene in Price. In her own June 23 response, Liss-Riordan, of Boston’s Lichten & Liss-Riordan, called the settlement “woefully inadequate.” Should it get rejected, she wrote, she planned to add PAGA claims to her case.
Here’s a look at some of the commissioner’s concerns:
NO INJUNCTIVE RELIEF
The Price settlement excluded injunctive relief, such as forcing an employer to appropriately classify its workforce. The commissioner wrote that “nothing in the statute precludes an aggrieved employee from seeking, and a court from imposing, injunctive relief to end ongoing violations.” Though lawyers in the case have noted that it would be the largest PAGA settlement in California history, the commissioner wrote that’s “not dispositive of the adequacy of a settlement.” Uber called her interpretation a “dramatic re-write of PAGA,” since PAGA doesn’t authorize injunctive relief, and plaintiffs attorneys said her interpretation “would alter and enlarge PAGA’s scope.”
NOT ENOUGH MONEY
The commissioner wrote that the settlement doesn’t consider the maximum value of the claims at issue. That value, given the DIR attorney’s letter, could be as much as $1 billion. But Uber has said in court papers that the suggestion is a “thinly veiled argument that the settlement is ‘not enough money,’” According to court papers, Uber said it “is nonsensical to stack scores of PAGA penalties potentially exceeding more than a billion dollars in maximum exposure, where all of those penalties arise from the same primary right.”
RELEASE TOO BROAD
Addressing a key question the judge raised, the commissioner wrote that more than one plaintiff can bring a PAGA case on behalf of the state, noting that a “judgment in a PAGA action can bind all” who have similar claims. But she also found the deal contained a “broadly-worded release” inconsistent with PAGA. Uber said the commissioner’s view “would place defendants at the mercy of serial PAGA suits.” Plaintiffs’ attorneys noted that the commissioner didn’t object to a similar release provision in the settlement before Chen.
IMPROPER INCENTIVE PAYMENTS
The commissioner raised concerns about a potential conflict of interest given the deal’s $54,000 in incentive payments to the two lead plaintiffs in the case. Under PAGA, 25 percent of the civil penalties would go to all drivers, including the lead plaintiffs. Her argument, Uber wrote, “does not necessarily incentivize the named plaintiffs to fight for more.”
POSSIBLE REVERSE AUCTION
The commissioner cautioned whether the settlement had been reached through a reverse auction, in which the parties shop for the best possible deal from among many cases. Lawyers on both sides denied such collusion, noting that Price provided eight times more monetary relief than had the case before Chen. Liss-Riordan said the “circumstances of this settlement clearly point to the fact that a reverse auction occurred here.”