In growing debate and controversy over the popular car service, Uber, a California judge ruled on Wednesday all Uber drivers could participate in a class action lawsuit against the company, despite some drivers agreeing to arbitration clauses in their contracts. A class action lawsuit was filed in federal court in California by Uber drivers who allege to be “employees” of Uber, entitling them to reimbursement for expenses such as gas and vehicle maintenance. The drivers currently pay those costs themselves. With this ruling, now all approximately 160,000 Uber drivers in California can participate in the lawsuit.
Arbitration clauses are usually favored and upheld under the law, as they are terms the parties agreed to in a contract. Arbitration clauses function to cut off people’s rights to bring lawsuits in court and their rights to trial by jury. Instead, an arbitration clause forces the parties to bring all disputes before a single arbiter who hears and decides the case. Arbitration proceedings have different rules than regular court proceedings and significantly limits parties’ rights to pursue their claims. In addition, arbitration can be quite costly.
Here, some Uber drivers apparently signed arbitration clauses as part of their contracts with Uber. It is unusual for a judge to rule parties who signed and agreed to an arbitration clause can still pursue their claims in court. It happened here because the judge found the terms of the arbitration clauses in the contracts legally unenforceable. Usually arbitration agreements are legally enforceable and are very hard to overcome.
Uber is also facing backlash from cab and other transportation companies because Uber is undercutting the ground transportation business due to its business model. Part of Uber’s model is for its drivers to be independent contractors – saving Uber on benefits such as vehicle and workers’ compensation insurance, payroll taxes, and mileage reimbursements. Traditional cab and transportation companies, however, are responsible for all of these expenses and more, cutting their profit margins in comparison to Uber. Traditional companies claim they are forced to play by the rules and Uber should be too. Many cab drivers have demonstrated across the country in opposition to Uber’s unregulated operations.
Legislation has yet to deal with these issues however, it is likely in the works in several states. Some states will be requiring background and insurance checks for all Uber drivers in their state. Many cities have already banned Uber from picking up passengers at airports, essentially reserving those fares for traditional cab companies. The law is generally slow to catch up with technology, as is clearly the case with Uber and other similar services.