Courts have an important
responsibility to approve class action settlements and ensure that the
plaintiffs and their attorneys are not selling out the class by colluding with
the defendants. Sometimes, though, in their zealous protection of the absent class
members, courts wind up forgetting the old aphorism attributed to Confucius: "Better a diamond with a flaw than
a pebble without." Uber drivers may wind up with pebbles rather
than somewhat flawed diamonds. Crushed pebbles may make concrete, but even
flawed diamonds could help pay a lot more bills.
When veteran wage-and-hour
litigator Shannon Liss-Riordan sought court approval for a $100 million settlement
on behalf of a class of 385,000 Uber drivers in California and Massachusetts, she was denounced by some objectors for the compromise she reached, even after she volunteered to
cut her fee in half. Then Judge Edward Chen of the U.S. District Court for the
Northern District of California last month denied approval of the proposed
settlement of the drivers’ independent-contractor-misclassification claims, finding
that the settlement was not “fair, adequate, and reasonable,” as required to
grant preliminary approval.
Judge Chen is one of the most careful
protectors of absent class members and one of the most thoughtful jurists when
it comes to adjudicating wage protections. In denying preliminary approval for
the proposed independent-contractor-misclassification settlement, Judge Chen expressly endorsed the view
that district court review of class action settlements should not be too lax –
and particularly that the court’s review at the preliminary (as opposed to the
final) approval stage should be more searching. But, in this case, his decision disapproving
the settlement may have unintended consequences.
In disapproving the settlement,
Judge Chen acknowledged the risk posed by Uber’s previously-rejected arbitration
provisions, stating: “The most obvious risk to Plaintiffs is, of course, that
the Ninth Circuit [which sits as the Northern District of California’s
reviewing court] will uphold the validity of the arbitration provision
contained in the 2013 and/or 2014 agreements, which this Court found was
invalid as a matter of public policy.” This is exactly what happened.
Last week’s decision from the Ninth Circuit
upholding Uber’s arbitration agreements (which contained class waivers) in
another case may mean that the vast majority of those 385,000 drivers will get
nothing. The Ninth Circuit ruled that Judge Chen had erred in previously declaring
Uber’s arbitration agreements unenforceable, and that in doing so, he had
“ignore[d]” circuit precedent.
Now, to get anything at all, each
driver may need to bring an individual arbitration against Uber and win,
showing that he or she was more like an Uber employee than an independent
contractor. This will be a tough showing and, as Uber well knows, the vast
majority of drivers will never step forward to assert the risky claims at all.
Denying approval for the $100
million settlement, Judge Chen found that the settlement reflected a 90%
discount on the full value of the drivers claims, with the exception of the
claim under the Private Attorneys General Act (PAGA), for which the Court
indicated that the settlement was a mere 0.1% of their full value. In
particular, Judge Chen expressed concern that the PAGA claim had recently been
added to the lawsuit to induce Uber to settle. Furthermore, Judge Chen
questioned the value of the nonmonetary relief in the settlement, such as the
provision that would allow drivers to accept cash tips (as opposed to in-app
tipping as with Lyft), suggesting that riders accustomed to a cashless
experience are unlikely to reach for their wallets.
It is possible that each of these
terms was a compromise that was less than ideal for the Uber driver class
members. Of course, any settlement of a wage-and-hour class action (or more
broadly, any settlement of any lawsuit) is going to consist of a mix of terms,
both good and bad for both sides of the dispute. But surely getting some money
in a settlement – even an imperfect settlement – would be much better for
hundreds of thousands of Uber drivers than getting nothing at all.
These Uber disputes raise central
questions about the level of scrutiny a district court should apply to a class
settlement – particularly given Judge Chen’s criticism of “lax review” – and
whether the Court or class counsel is in a better position to evaluate the
risks of non-recovery. While the court is charged with preventing collusive
settlements to protect absent class members, ultimately, seasoned and
responsible class counsel and class members both tend to care most about the
bottom line, in light of the risks. With the benefit of hindsight, Liss-Riordan
appears to have been right about the risks of proceeding with the litigation,
and the settlement’s objectors were misguided.
The case is not over. Liss-Riordan
has been signing up Uber drivers to pursue individual arbitrations in California. The PAGA claims
on behalf of California drivers may not be compelled to arbitration.
Nonetheless, the likelihood of a recovery nearing $100 million, or getting
money for all 385,000 Uber drivers, looks bleak.
When reviewing class action
settlements that were negotiated at arm’s length by experienced class counsel,
where class counsel is able to articulate the rationale for their position,
courts should be hesitant to second-guess counsel’s risk assessment. The
perfect is often the enemy of the good in these cases, where a court – with a
single decision – can erase years of work to obtain a successful result, absent
some kind of an agreement between the parties. Particularly in the employment
context, where workers should be recovering more than nominal amounts in any
class resolution, those who do not wish to participate can always opt-out of a
deal and pursue their own claims if they are so inclined. For the rest, though,
receiving flawed diamonds might be a whole lot better than the alternative – getting
dirt.
