District Judge Rules Uber's Arbitration Agreements Unenforceable On Public Policy Grounds

On September 2, we addressed the much-publicized O'Connor v. Uber Technologies, Inc. case (No. 13-cv-03826-EMC) pending before the U.S. District Court for the Northern District of California. In O'Connor, a group of 160,000 current and former drivers contend that they were Uber's employees rather than independent contractors and hence entitled to protections provided by the California Labor Code. Specifically, the Plaintiffs raised claims for expense reimbursement and converted tips under the California Labor Code.

Now the court has issued a 32-page Order granting in part and denying in part the Plaintiff employees' Supplemental Motion for Class Certification. One problematic component of the Order is Judge Edward Chen's determination that Uber's arbitration agreements with Private Attorneys General Act (PAGA) waivers are unenforceable as a matter of public policy. The Order illustrates some of the pitfalls surrounding the creation of enforceable arbitration agreements with representative action waivers in California. The evolving law regarding PAGA claims, their waiver, and related judicial procedures only increases the difficulty of decision making.

Arbitration, PAGA Waivers, and Public Policy

As a threshold matter, Judge Chen reviewed recent decisions (well-known to our readers) on the enforceability of PAGA waivers. The court cited Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348, 360 (2014) (analyzed in our June 23, 2014, blog), for the proposition that "an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any form is contrary to public policy." Further, according to the court, a public policy prohibiting a waiver of PAGA claims would not be preempted by the Federal Arbitration Act (FAA). Indeed, Judge Chen also found that the Ninth Circuit in Sakkab v. Luxottica Retail North America Inc., 803 F.3d 425, 431-40 (9th Cir. 2015), (covered in our October 7, 2015, blog article), agreed that a PAGA waiver is void based on public policy and that the Iskanian rule was not preempted by the FAA. Armed with these two holdings, the court further laid the basis for invalidating the Uber arbitration agreements by citing Securitas Security Services USA, Inc. v. Superior Court, 234 Cal. App. 4th 1109, 1127 (2015), for the principle "that an arbitration agreement with a non-severable PAGA waiver was unenforceable on public policy grounds."

Moving to the...