Judge rejects settlement in major Uber driver status case

A federal judge on Thursday rejected a proposed settlement, worth as much as $100 million, in a class-action legal battle between Uber and its drivers in two states.

The decision from Judge Edward M. Chen is a setback for the company, which said that the settlement was a key step in its attempt to move past a debate over the status of its drivers.

{mosads}“While recognizing sizeable settlement sum and policy changes proposed by the Settlement Agreement and the significant risk that drivers face in pursuing this litigation, for the reasons explained below, the Court concludes that the Settlement as a whole is not fair, adequate, and reasonable and therefore denies Plaintiff’s motion for preliminary approval,” Chen said in his decision.

Uber, like many of its peers in the on-demand economy, treats the core of its workforce — its drivers — as independent contractors. That leaves them lacking many of the benefits and protections often afforded to employees.

Drivers brought a suit against the company in California, claiming that they had been misclassified. Others made a similar claim against the company in Massachusetts. In April, the company reached a settlement with the drivers in both cases.

Under the terms of the deal, Uber agreed to pay out $84 million to drivers covered by the lawsuit and to throw in an additional $16 million if it went public under certain conditions. It also committed to making internal policy changes aimed at improving conditions for drivers.

In a victory for Uber, the drivers would remain independent contractors under the proposed settlement.

The lawyer behind the case argued that it was a successful outcome for drivers, but the deal had its critics.

Chen took issue with multiple parts of the proposal in his Thursday decision.

He expressed doubts about the certainty of the $16 million payout coming to pass, saying that “absent a showing that there is a realistic likelihood that the additional $16 Million will be realized, the Court will only consider the $84 million monetary amount in assessing the adequacy of the Settlement Agreement.” He called the settlement amount a “substantial discount” off the value of the claims as estimated by the drivers.

Chen also raised concerns about the other elements of the deal. He said that “much of this non-monetary relief is not as valuable as the parties suggest, limiting their worth in considering the amount being offered in settlement.”

Uber expressed disappointment over Chen’s decision and said it was reviewing its options for moving forward.

“The settlement, mutually agreed by both sides, was fair and reasonable,” said Uber spokeswoman Jill Hazelbaker in an email. The lawyer for the plaintiffs in the case did not immediately respond to a request for comment.

The decision is a blow to Uber as it looks to move past a contentious debate over the status of its drivers.

It’s a topic on the mind of some in Washington, like Sen. Mark Warner (D-Va.), who worry that the rise of the on-demand economy leaves a growing number of workers with a diminished safety net. Democratic presidential nominee Hillary Clinton has promised to “convene a high level working group of experts, business and labor leaders to recommend how best to ensure that people have the benefits and security they need no matter how they work.”

Still, it was clear in April that Uber saw settling the California and Massachusetts cases as a chance to turn the page.

“As we’ve grown we’ve gotten a lot right — but certainly not everything,” said CEO Travis Kalanick in a blog post at the time, before one of the major changes included as part of the deal. “But there’s more to do, which is why I’m excited about some other improvements we have planned for the not too distant future.”

“Stay tuned.”