What Lessons Can Employers Learn from the Uber Class Action?

By Amelia J. Holstrom - Skoler, Abbott & Presser, P.C.

March 21, 2018

For years, a class action lawsuit brought by a group of Uber drivers has been pending in federal court in California.  The plaintiffs in that case allege that they are misclassified as independent contractors and are entitled to wages, overtime, and tips.  Some of the plaintiffs include Uber drivers from Massachusetts.  Although the parties reached a settlement agreement in that matter in 2016, the court declined to approve that settlement agreement and the litigation has continued.  Since, a number of other cases making the same allegations have popped up in other courts, in California and elsewhere.

Uber has argued that drivers who signed arbitration agreements that contain class action waivers (which many of its drivers did) should not be allowed to proceed as a class.  These agreements require employees to resolve their dispute through an arbitration process, rather than in court, and also require employees to waive their right to assert an action on behalf of a class of employees in exchange for employment. The U.S. District Court for the Northern District of California struck down the arbitration agreements as unconscionable and unenforceable, but Uber appealed that decision to the 9th Circuit Court of Appeals.   Because the U.S. Supreme Court is currently considering the issue of whether class action waivers in arbitration agreements are lawful, the 9th Circuit has put the Uber litigation on hold pending the Supreme Court’s decision on that issue.  That decision will determine whether employees who have signed arbitration agreements with Uber may continue litigating their claims in federal court or will have to arbitrate their claims individually.  However, there are a number of plaintiffs from Massachusetts who did not sign arbitration agreements including class action waivers and just this month, the court determined that those plaintiffs could continue to move forward with their case.

So, what lessons can a Massachusetts employer learn from the lawsuits pending against Uber?

Misclassifying Employees as Independent Contractors is a Big Problem. 

As we have discussed previously, Massachusetts has one of the most – if not the most – restrictive independent contractor statutes in the United States.  The statute is intended to drastically reduce the number of individuals that can be properly classified as independent contractors by creating a framework by which the vast majority of workers must be treated as employees and therefore entitled to the benefits and rights of employment, including overtime compensation.  Consistent with its intended purpose, the statute contains a three-prong test to establish that someone is an independent contractor: (1) the individual is free from control and direction with the performance of the service, both under his contract and in fact; (2) the service is performed outside the usual course of business of the employer; and (3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.  If any of the above statements are not true regarding an individual’s work, the worker must be classified as an employee.  Under the law, it is the employer’s burden to prove that all three prongs of the independent contractor test are met.

For years, savvy plaintiff’s-side lawyers have been bringing claims, including class action lawsuits, against employers who misclassify employees as independent contractors and seeking triple damages, attorney’s fees, and costs under the Massachusetts Wage Act.  As a result, it is crucial that employers do not misclassify employees in Massachusetts. Doing so can lead to astronomical costs.

Arbitration Agreements, including Class Action Waivers, Are a Good Idea. 

As discussed above, arbitration agreements and class action waivers are extremely beneficial to employers.  Employees who sign arbitration agreements and class action waivers waive their right to bring claims in court and on behalf of a class of individuals.  Instead, the employees must submit the matter to arbitration, a process which is less costly than litigation in the courts for employers, and can only do so on their own behalf.

Since 2013, the Massachusetts Supreme Judicial Court has permitted the use of arbitration agreements that include class action waivers.  If the US Supreme Court follows suit and determines that such agreements are lawful, employers in Massachusetts should strongly consider their use with new and current employees.