Professor Nora Freeman Engstrom Clarifies Unresolved Issues in Uber Settlement

Nora Engstrom
Professor Nora Freeman Engstrom

An expert on the intersection of tort law and professional ethics, Professor Nora Freeman Engstrom’s current work explores the day-to-day operation of the tort system and particularly the tort system’s interaction with alternative compensation mechanisms, such as workers’ compensation and no-fault automobile insurance. She has also written extensively on law firms she calls “settlement mills”—high-volume personal injury law practices that heavily advertise and mass-produce the resolution of claims. In the interview that follows, she discusses the recent Uber class action settlements in O’Connor et al v. Uber Technologies, Inc. et al and Yucesoy v. Uber Technologies, Inc. et al, and their implications on the ongoing employee/independent contractor debate.

Many have been reading about the Uber class action settlement, announced on Thursday evening, April 21st. Can you provide background on the underlying claims?

In these lawsuits, Uber drivers in California and Massachusetts claimed that Uber misclassified them as independent contractors, rather than employees. The drivers wanted to be in the employee category, as it entitles them to a grab bag of benefits and protections that independent contractors typically lack, including health insurance, Social Security benefits, overtime, and paid sick leave.

Why did the parties settle?

The litigation had been pending for a couple of years, and both parties (plaintiffs on one side and Uber on the other) were facing a June trial in U.S. District Court in Northern California in front of Judge Edward Chen. To avoid that trial, and its attendant expense and risk, both sides relinquished something, and both sides got things in return.

Under the settlement, who gets what?

Under the terms of the tentative settlement, the driver-plaintiffs will pocket some $84 million and perhaps as much as $100 million (with the uptick in the event of a successful IPO). Beyond these cash payments, Uber also made a number of meaningful concessions that, considered in tandem, will make life appreciably better for the men and women who comprise Uber’s fleet. Namely, Uber has agreed to limits on its right to “deactivate” (essentially, fire) certain drivers. Uber will facilitate and recognize a “Driver Association,” authorized to bring drivers’ grievances and concerns to company management. And, most importantly, Uber has agreed to permit drivers to place signs in their cars notifying passengers that “tips are not included” in the fare—but can be paid and would be appreciated. On this last point, many Uber riders (myself included!) have been under the false impression that we weren’t supposed to tip, even for excellent service. The now-permitted signs will clear up that confusion—and, it’s predicted that many properly-informed passengers will tip, and those tips will substantially increase drivers’ take-home pay.

Now, what did Uber get in return? That’s easy. Uber dodged a bullet. As the L.A. Times has put it, “[h]ad the litigation continued, it might have put the company’s entire business model on trial.” With the settlement, the trial is called off, and the affected workers will, at least for now, agree that their “independent contractor” status won’t change.

One last point: The agreement is, as I say, “tentative” because, like all federal class action settlements, it will only become effective if Judge Chen concludes that it is “fair, reasonable, and adequate,” after a searching fairness hearing. If Judge Chen rules that the settlement somehow falls short and is not equitable, the parties will go back to the drawing board.

Many in the press are making it sound like this settlement “resolves” the employeeindependent contractor controversy that’s been dogging Uber, as well as other players in the gig economy. Do you agree with that assessment?

I don’t. No doubt, this settlement is big news, and it should be. Covering about 385,000 workers, it is one of the largest settlements ever achieved on behalf of plaintiffs claiming independent contractor misclassification. But, while it’s a big deal, it is by no means the last word.

Thursday’s agreement tentatively resolves two specific, private class actions encompassing drivers from just two states, California and Massachusetts. That’s all. It does not bind the tens of thousands of Uber drivers who are not members of the relevant classes. Nor does it prevent a future court from deeming Uber drivers employees. Nor does it tie the hands of federal, state, or local authorities, who have their own reasons to care, deeply, about drivers’ classification.

In addition, recognize that what we’re talking about is Uber drivers’ status for employment law purposes. There have been other lawsuits where, for example, pedestrians and motorists have been injured by Uber drivers and have sued Uber, under the theory that the company is vicariously liable for its drivers’ negligence, under the doctrine respondeat superior. As any 1L Tort student knows, for this inquiry, the employee–independent contractor distinction again looms large. That’s because businesses are, generally, liable for the torts of the former, as long as the tort is committed within the “scope of employment.” But, if the tort is committed by the latter, the business is typically not on the hook. Are Uber drivers employees or independent contractors for tort law purposes? It’s a big and consequential question. And, I can’t emphasize this enough: Even after Thursday’s settlement, the question remains an open one.

Are there any larger lessons we can draw from this litigation and its resolution?

As most recognize—and we see, acutely, here in Silicon Valley—there has been a veritable revolution in the so-called “gig” economy, with Uber, Lyft, Taskrabbit, Instacart, Homejoy, and so forth. With their ingenuity, flexibility, and ability to tap previously untapped human capital, these companies hold tremendous promise, for workers and consumers alike.

But the growth in this gig economy is accompanied by certain, predictable growing pains. The current problem is that the workers who toil in the gig economy sit midway between traditional legal categories—and that middle space workers occupy is, frankly, a legal no-man’s land.

The fact is, Uber drivers don’t fit neatly into our “employee” or our “independent contractor” boxes, as those boxes have traditionally been drawn and defined. Uber drivers straddle current categories. What do we do about that? Should we pick one of the two traditional boxes and wedge workers in, however uneasily? Or, is it time to adapt, perhaps to create a third worker category, accompanied by new protections and demanding new responsibilities, in light of the way technology is transforming—and is bound to further transform—the American workplace? Thursday’s settlement does not answer the question. But, in time, it’s a question we will have to address.

2 Responses to Professor Nora Freeman Engstrom Clarifies Unresolved Issues in Uber Settlement
  1. I was an Uber driver until July 4, 2015 when an uninsured drunk driver; ran a red light as I was on my way to pick up a rider. I have been out of business not only with Uber but also with my Carefiving business since then. I imediately reported the accident to Uber but did not hear from Uber for weeks. Then found that they do not provide coverage but merely reimburse for medical bills from what ever coverage I can manage to get. To get coverage I have; moved to change county insurance
    plans and hired an Atty just to get Dr appts. on lien but whom I believe is as you describe a settlement mill. Also to date I have received no insurance coverage from Uber. My car was not replaced, no compensation for lost wages, no medical coverage, not even reimbursement for transportation to or from Dr appts. The police report shows I was clearly not at fault and in compliance with all Uber policy and procedure guidelines. They gave a DUI to the driver that hit me. I cannot ding any other Atty to talk to about my case. I am very interested in asking for your help and/or providing any info that may be helpful to your work or research.

    1. Thank you

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