Uber Technologies Inc. (UBER.N) has been dealt a setback as the California Supreme Court ruled on Monday that the company must face a lawsuit in California. The lawsuit claims that Uber should have covered work-related expenses for UberEats drivers. This ruling could have significant implications for companies in the largest U.S. state and is seen as a victory for labor advocates.
The Ruling
The unanimous ruling stated that UberEats driver Erik Adolph did not waive his right under state law to sue on behalf of a large group of workers, even though he had signed an agreement to bring his own work-related legal claims through private arbitration. Adolph filed the lawsuit against UberEats in 2019, alleging that the company misclassified UberEats drivers as independent contractors instead of employees. According to California law, employees are entitled to reimbursement for work expenses.
California has a unique law called the Private Attorney General Act (PAGA), which allows workers to sue for violations of employment law on behalf of the state. If successful, workers are entitled to keep 25% of the monetary damages awarded, while the remainder goes to the state to fund an agency responsible for labor law enforcement.
The California Supreme Court clarified that PAGA does not prevent workers from pursuing claims individually through arbitration while simultaneously litigating large-scale claims in court.
This ruling potentially weakens the impact of a 2022 U.S. Supreme Court decision involving Viking River Cruises, which allowed companies to compel individual PAGA claims into arbitration. It also suggests that California employers may face more large-scale lawsuits in the future.
Court rules against UberEats in major win for California Drivers.
Uber’s Disagreement
Uber’s attorney, Theane Evangelis, expressed disagreement with the ruling, stating that it conflicts with the Viking River decision and violates a federal law that mandates the enforcement of valid arbitration agreements. Evangelis added that they are considering their options for appeal.
Michael Rubin, representing Adolph, believes that this ruling may prompt companies to reconsider their practice of forcing workers’ claims into arbitration if large-scale PAGA lawsuits can still proceed in court. Rubin had also represented the plaintiff in the Viking River case.
Arguments from the Critics
Mandatory arbitration agreements, which prevent workers from participating in traditional class action lawsuits, are required for over half of private sector non-union workers in the United States. Critics argue that mandatory arbitration discourages workers from pursuing individual claims, particularly those involving small amounts of money, and that workers are more likely to lose in arbitration.
Business groups contend that arbitration is a quicker and more efficient process compared to court litigation, enabling workers to recover more compensation. Last year’s Viking River ruling was hailed by trade groups, as it was believed to prevent plaintiffs in California from circumventing arbitration through the use of PAGA.
Groups in Support of Uber
Various groups, including the U.S. Chamber of Commerce, submitted briefs in support of UberEats, cautioning the California Supreme Court that ruling against the company could encourage baseless lawsuits and pressure companies to settle them. However, the court suggested that such concerns should be directed toward state legislators, who possess the authority to modify the law.
