Gig News Explainer: Uber's Driver Arbitration Clauses & the O'Connor v. Uber Class Action


Published January 4th, 2016 - 01.04.1619


U.S. District Court Judge Edward Chen recently issued a final class action certification in O’Connor v. Uber Judge Chen expanded the class to include drivers bound by 2014 and 2015 arbitration clauses, finding that those clauses were unenforceable on public policy grounds.  Since the issuance of the order, Uber has sought to delay the trial and has issued a new arbitration agreement, prompting a response from Judge Chen.  This explainer is intended to give some clarity to these developments.

Judge Chen’s Order & Unenforceability of the 2014/2015 Arbitration Clauses

Like many employers, Uber has required that drivers sign agreements agreeing to bring any claims against the company through arbitration, waiving the right to litigate disputes or bring class actions.  Because of these agreements, Uber has argued that drivers are precluded from participating in O’Connor and that they must bring any misclassification claims individually through arbitration.  Judge Chen previously found the arbitration clauses used by Uber before June 2014 to be procedurally and substantively unconscionable under California law, meaning they couldn’t be enforced and drivers who started with Uber before June 2014 could be part of the O’Connor class.  Uber issued a revised arbitration agreement for drivers starting after June 2014 (and another new one in 2015), and those agreements complied with notice and opt-out requirements such that they were not unconscionable.  Nevertheless, in his order this month Judge Chen found that the 2014 and 2015 arbitration clauses were unenforceable on public policy grounds, a distinct inquiry that didn’t require a finding of unconscionably.

The dispute over the enforceability of the 2014 and 2015 arbitration clauses relates to California’s Private Attorney General Act (PAGA), which allows California workers to bring civil claims for violations of California’s Labor Code that would normally have to be brought by the State. The 2014 and 2015 arbitration clauses contained waivers of PAGA claims, and Judge Chen found that PAGA waivers are unenforceable because they are contrary to public policy.  Since Judge Chen also found the PAGA waivers couldn’t be severed from the rest of the agreements without undermining them as a whole, he found the entirely of the agreements were unenforceable.  Uber attempted to argue that the blanket PAGA waiver in the arbitration agreements was severable from the rest of the arbitration agreement.

Judge Chen, however, undertook a linguistic analysis of the arbitration agreement and concluded the blanket PAGA waiver couldn’t be severed from the rest of the agreement without undermining it in its entirety.  In other words, modifying the arbitration agreement to exclude the blanket PAGA waiver would “remove the heart of the arbitration agreement and not require any arbitration at all.”  Judge Chen also found that severance of the blanket PAGA waiver would be inappropriate under the California Civil Code since “the overarching purpose here – to require all disputes (except those expressly excluded) be resolved solely by individual arbitration to the exclusion of all PAGA representative actions – violates public policy.”  Finally, Judge Chen found that severance would not be permitted because of equitable considerations, namely that drivers who read the agreement absent the blanket PAGA waiver would “be misled into believing that they have no right to bring a PAGA claim, as the arbitration agreement not only outright prohibits representative actions, but requires that all disputes be arbitrated on an individual basis.”

As to Uber’s other claims with respect to the PAGA waiver, Judge Chen found that while the opt-out provision in the arbitration clause were relevant to the issue of procedural unconscionably, “it does not mean that an individual entered into a “knowing and intelligent waiver” of his or her right to bring a PAGA claim.  And that such a waiver could only be made after a dispute has arisen.  He also concluded that the plaintiff drivers had not “not waived the argument that the non-severable PAGA waiver is unenforceable as a matter of public policy.”

So, while Judge Chen did not find that the 2014 and 2015 arbitration agreements were unconscionable, he did find that they were unenforceable in their entireties since they contained non-severable waivers of California’s Private Attorney General Act.  Because the arbitration agreements required drivers to sign a pre-dispute PAGA waiver that couldn’t be severed from the rest of the agreements, the agreements themselves couldn’t be enforced as a matter of public policy.  As a result, Judge Chen included drivers who signed those agreements in the final class.

Uber’s Expedited Motion to Stay Pending Appeal

Following Judge Chen’s ruling, Uber sought an expedited motion to stay pending appeal.  According to Law360, Uber claims that Judge Chen’s “decision to unravel and nullify the arbitration agreements in their entirety based on the PAGA waiver alone flatly contradicts both federal and California law and is unlikely to survive appellate review.”  Uber says that the trial, which is set for June, should be halted until the Ninth Circuit is able to rule on its appeal.

Uber’s New Arbitration Agreement and Judge Chen’s Response

As Ars Technica reports, Uber also issued a new arbitration agreement to drivers and required that drivers sign it in order to continue driving for Uber.  That agreement can be read here.  It again includes a class action waiver and gives drivers 30 days to opt out, but requires drivers to email Uber to do so.

Ars Technica also notes that Judge Chen in a hearing criticized Uber for issuing the new agreement and “ruled that the new agreement does not affect members of the certified class of California drivers who are currently suing Uber over whether they should be considered employees.”  Judge Chen “added that he was not sure the court had the authority to halt the new agreement but also ruled that Uber was now forbidden from communicating with drivers in this manner without first consulting with the court or the plaintiffs’ attorney,” criticizing Uber for its use of confusing language.

Shannon Liss-Riordan, the attorney representing the plaintiffs, filed an emergency motion to stop the new arbitration agreement.  She has also “filed a new motion to have the case be decided by Judge Chen rather than a jury and then to split the case in two phases: determination of liability and the subsequent calculation of damages.”  For more on that, see The Reporter’s coverage.  As Harold noted, Judge Chen denied the motion for a bench trial.

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