Digging into Uber’s 9th Circuit Appeal

Overview

Uber’s new defense counsel — Ted Boutrous of Gibson Dunn & Crutcher — recently filed an appeal in O’Connor v. Uber Technologies. The appeal brief is well-crafted and even entertaining. But more importantly, this brief is the latest statement of how Uber sees the impact of its business model on the driver-partners it “employs”.

So what is this case about, exactly? Well, Uber is facing a class action lawsuit that challenges a core aspect of its business model. According to the lawsuit, Uber improperly classified its drivers as independent contractors, when instead they should have been full time employees — thus requiring Uber to collect payroll taxes and extend benefits to drivers.

What is a “class”?

Being placed in a class in a class action lawsuit is sort of like being placed on a team: You are not identical to other members of the team, but you share key traits with them. In the sports context, you share with your teammates a passion for a specific sport; in this legal context, you share with other class members rights and obligations typical of an employee. Uber’s lawyers could not disagree more. From their perspective, Uber’s drivers do not share any key interests. They’re fundamentally diverse, in income, educational attainment, and professional aspirations. And thus drivers do not belong in the same class at all.

Three key arguments

Uber’s appeal brief contains three arguments. First, Uber drivers are too diverse to be a class. Second, the policy concerns are too complex for a jury. And third, some Uber drivers waived their right to be part of a class by signing mandatory arbitration agreements in 2013 which include waivers for precisely this kind of class action lawsuit.

Too diverse to be a class

Below, I argue that Uber’s California-based drivers are not too diverse to be included in the same class.

Uber’s view has not yet been that convincing in court. Shannon Liss-Riordan, the lawyer for Uber’s drivers, previously convinced a federal judge that Uber’s California-based drivers shared the same interests, a prerequisite to placing these drivers in the same class. Liss-Riordan demonstrated that each and every one of these drivers had to (i) comply with Uber’s rules around treating riders properly, (ii) settle payment via Uber’s mobile application in accordance with rate schedules Uber set, and (iii) avoid any attempt to collect tips. These Uber drivers were all treated similarly in these respects. In light of these broad similarities, a federal judge determined that these drivers qualify for membership in the same class.

Uber’s response is really quite simple: The similarities noted above are not as legally important as the vast differences among the class members. To be sure, Uber drivers all get paid via the Uber network and are subject to similar basic rules of etiquette while driving. But the differences are much starker than the similarities: Uber drivers (a) do not share similar schedules, (b) have various professional identities outside of driving for Uber, (c) often have full-time jobs in addition to driving for Uber, and (d) do not receive uniform training, either from Uber or from a third-party licensing agency.

I can’t see how this is an argument against certifying a class. Again, revisit our sports team analogy. If you’re building a soccer team, you want people who all share a passion for soccer. They don’t all have to be great forwards, or fullbacks, or whatever. They don’t need to be the same height or have the same levels of agility. The differences across team-members don’t matter as long as they share a passion for soccer. This common thread is what unites them, what makes them a team.

So what unites Uber drivers as a class? It’s not their level of education. It is surely not shared work schedules. Nor is it a shared cultural background. If the common thread is none of these, what is it? I think the answer is plain as day: These drivers are united by the allegation that they have all been misclassified by Uber as independent contractors.

This allegation could turn out to be wrongheaded. But at this stage in the litigation, the issue is not whether Uber will win. The question is this: Do California-based Uber drivers share a common legal theory about how they have been harmed? Yes, they surely do. These Uber drivers are united in claiming that they were misclassified as independent contractors. Or, as an employment litigator might put it, each and every one of the class members “allege an identical injury.”

Uber’s defense counsel also made a second argument: Former Uber drivers should not be included in the class because they have no “forward-looking interest”. Since current drivers’ livelihood depends on Uber’s financial health, they certainly share a forward-looking interest in making sure that Uber’s business model is preserved. Yet previous drivers have no such concern. They would happily accept an award in this class action even if that meant current drivers would suffer.

This second argument has a smidgeon of truthiness. The problem, of course, is that we don’t know whether Uber’s current drivers would suffer greatly if it had to classify many or all of its drivers as full-time employees. The company would certainly “suffer” in the sense that it would lose the ability to generate current profit levels in important US cities. However, I have not seen a credible financial model showing that current drivers would be greatly harmed. And so, it’s hard to conclude that former Uber drivers should be excluded from the class. To buy that argument, I would want to see more evidence that Uber would find itself in deep financial straights were the lower court to force the company to reclassify its drivers as full-time employees.

Too complex for a jury

Here, I contend that juries are expected to handle complex policy concerns.

Let’s address Uber’s second argument, the policy concerns are too complex for a jury. In Mr. Boutrous’s own words:

In the face of such novel and difficult questions of law, stark differences between putative class members, and staggering potential consequences, the district court should not have risked committing the fate of an entire industry . . . to a single jury.

There are two problems with this argument. For starters, the jury system is assumed to be appropriate for handling a wide range of civil and criminal cases. Murder cases with complex forensic science, patent disputes involving novel technologies, and toxic tort cases are handled everyday by juries consisting of ordinary people. The American justice system likes ordinary people; it trusts ordinary people. And yet Uber’s defense counsel believes the case before it is uniquely complex, so special that ordinary mortals cannot touch it.

The second problem is that the law itself does not support Uber’s argument. In the class action context, there is no law that says the following: If a case meets complexity threshold X, then that case is too complex for a jury to decide. Such a law does not exist. Thus, when Mr. Boutrous claims that the questions in this lawsuit are “difficult and novel,” he may be correct. Personally, I think he’s spot on. However, this quite fair observation does not provide any legal reason to stop this lawsuit. After all, difficult and novel are just what American juries do.

Mandatory Arbitration Agreements

Below, I argue that Uber makes a plausible case that some Uber drivers should be disqualified from participating in this class action suit.

The third argument is the strongest. Uber contends that some Uber drivers waived their right to be part of a a class by signing mandatory arbitration agreements in 2013 which include waivers for precisely this kind of class action lawsuit.

To support this argument, Uber appeals to the Federal Arbitration Act (“FAA”). This law says that when a court certifies a class, it must not do so in a way that deprives a defendant (like Uber) of a “substantive right” afforded to that defendant under the FAA.

To get a handle on how strong this argument is, let’s focus on the “substantive right” that matters in this case — the arbitration clause Uber placed in its 2013 agreements with its drivers. That arbitration clause gives Uber a contractual right to preclude drivers who signed it from participating in class action lawsuits. Therefore, the clause does not mean anything if Uber can’t enforce the clause against drivers who signed it. And that’s certainly no bueno. As Mr. Boutrous’s apt words, “Uber should be entitled to prove that the agreements are enforceable where they were adopted by individuals with sufficient sophistication and means.”

The road ahead

Uber’s appeal makes me scratch my head a bit. One good argument and two weak ones? From one of the best litigation teams in the United States? I get the sense that they are fundamentally trying to buy time. In my view, there is zero chance that the courts — which often view disruptive business models with a mixture of curiosity and contempt — will allow Uber to avoid litigating a case this big.

Originally published at StartupGrind.

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