California Supreme Court Rules Uber Must Face Lawsuit over Work-Related Expenses
July 17, 2023
In a significant blow to Uber Technologies Inc (UBER.N) and a victory for labor advocates, the California Supreme Court has ruled that the company must face a lawsuit claiming it should have covered UberEats drivers’ work-related expenses. This decision could have far-reaching implications for companies operating in California, the largest U.S. state.
The unanimous ruling by the California Supreme Court stated that UberEats driver Erik Adolph did not waive his right under state law to sue on behalf of a large group of workers, despite signing an agreement to bring his own work-related legal claims in private arbitration. Adolph filed the lawsuit against Uber in 2019, alleging that the company misclassified UberEats drivers as independent contractors instead of employees, who are entitled to reimbursement for work expenses under California law.
At the heart of the ruling is a unique California law called the Private Attorney General Act (PAGA), which allows workers to sue for employment law violations on behalf of the state and retain one-quarter of any monetary award. The remaining funds are allocated to a state agency responsible for enforcing labor laws.
The California Supreme Court clarified that PAGA does not prevent workers from pursuing claims on an individual basis in arbitration while simultaneously litigating large-scale claims in court.
This ruling could potentially undermine the significance of a 2022 U.S. Supreme Court decision involving Viking River Cruises, which allowed companies to compel individual PAGA claims into arbitration. The ruling also suggests that California employers may now face an increase in large-scale lawsuits.
However, Uber’s lawyer, Theane Evangelis, argued that the California Supreme Court’s ruling contradicts the Viking River decision and violates a federal law that mandates the enforcement of valid arbitration agreements. Evangelis stated, “We are considering our appellate options.”
Michael Rubin, representing Erik Adolph, believes this ruling may prompt companies to reconsider forcing workers’ claims into arbitration if large-scale PAGA lawsuits can proceed in court. Rubin also represented the plaintiff in the Viking River case.
It is worth noting that over half of private sector, nonunion U.S. workers are required to sign arbitration agreements as a condition of employment. These agreements typically prevent them from filing or participating in traditional class action lawsuits.
Critics of mandatory arbitration argue that it discourages workers from pursuing individual claims, particularly those that involve small amounts of money. They also assert that workers who bring disputes to arbitration are more likely to lose.
Conversely, business groups contend that arbitration is a quicker and more efficient alternative to court proceedings, allowing workers to recover more money. These groups welcomed the Viking River ruling, touting it as a means to prevent plaintiffs in California from exploiting PAGA to bypass arbitration.
Various organizations, including the U.S. Chamber of Commerce, filed briefs in this case warning the California Supreme Court about the potential for an increase in baseless lawsuits and pressured corporate settlements if the ruling favored Adolph. Nevertheless, the court reasoned that these concerns should be directed at state legislators, who have the authority to modify the law.
The repercussions of this ruling are expected to be closely monitored, as it could impact the ongoing debate surrounding arbitration agreements and workers’ rights in the United States.
By Daniel Wiessner in Albany, New York, and Alison Frankel in New York; Editing by Alexia Garamfalvi and Josie Kao