A federal judge on Thursday rejected the proposed settlement of a class action lawsuit that claimed Uber misclassifies its drivers.
US District Court Judge Edward Chen for the Northern District of California ruled that Uber's settlement offer, in which it would have paid $100 million to roughly 385,000 drivers in California and Massachusetts, was unfair, inadequate and unreasonable. Under terms of the settlement, Uber would have also been allowed to continue to classify drivers as independent contractors, avoiding a host of expenses associated with employees.
The proposed settlement, reached in April, appeared to end a threat to the foundation of Uber's business model. The company has grown dramatically in the past six years by providing a smartphone app that sidesteps taxicabs and provides a connection between people who want a ride and de facto cab drivers who pilot their own vehicles. But their classification as independent contractors upset drivers, because it meant the company would not be responsible for all sorts of costs, including Social Security, health insurance, paid sick days and overtime.
Under the terms of the proposal, Uber would no longer be able to terminate drivers at will and would have created appeals panels for drivers who feel they have been terminated unjustly. Uber would also make clear to riders that tips are not included in Uber's fares, and drivers will be permitted to post signs reflecting that arrangement.
The proposed $100 million settlement was immediately criticized as inadequate by drivers in the lawsuit, who filed more than 20 objections to the lawsuit with the court. According to court documents made public in May, drivers would have been entitled to an estimated $730 million in expense reimbursements had they been classified as employees rather than contractors.
Uber said it was disappointed with Chen's decision was reviewing its options.
"The settlement, mutually agreed by both sides, was fair and reasonable," Ubers spokeswoman Jill Hazelbaker said in a statement. "We're disappointed in this decision and are taking a look at our options."
Shannon Liss-Riordan, attorney for the drivers, also expressed disappointment with Chen's ruling but said that it was still possible that a revised settlement proposal could be reached that satisfies the court's concerns.
"If not, as I've said before, I will take the case to trial and fight my hardest for the Uber drivers," Liss-Riordan said. But she added that if a new proposal can't be reached, "it now seems very likely that the scope of this case may be drastically reduced to about 8,000 drivers because of Uber's arbitration clause."
Updated at 6 p.m. PT with drivers' attorney's statement.