SAN FRANCISCO — A federal judge Thursday struck down a proposed class-action settlement between Uber and a group of its current and former drivers, potentially continuing a protracted lawsuit that questioned a key tenet of the ride-hailing company’s business.
Under a settlement forged in April, Uber had been set to pay up to $100 million in reimbursement damages to nearly 400,000 drivers. The drivers first sued Uber in 2013, claiming that they should have been classified as employees rather than independent contractors of the company. Uber has opposed having its drivers be categorized as employees, a more costly designation that would require the company to pay payroll taxes and ensure that drivers earn at least the minimum wage.
In documents filed in US District Court for Northern California on Thursday, Judge Edward M. Chen ruled that the April settlement was “not fair, adequate, and reasonable” as grounds for denial. He also said a small portion of the $100 million amount reflects only 0.1 percent of the potential full verdict value of the case.
The decision is a blow to Uber in a longstanding battle with its drivers, many of whom have argued that the type of control Uber exerts over them constitutes conditions of employment. As employees, Uber drivers would be entitled to reimbursement for expenses and vehicle maintenance, costs that as independent contractors they now pay themselves.
As part of the settlement agreement, Uber also made other concessions, like recognizing and speaking with quasi-unions of its drivers in New York and other states. It also allowed drivers to accept tips at the end of each ride.
Uber had hailed the settlement as a victory for drivers who wanted to maintain flexibility in their roles. But others said the reimbursement amount was far too low. Uber is valued at $62.5 billion, and in June it raised $3.5 billion from Saudi Arabia’s Public Investment Fund; the company also recently agreed to sell off its China operations to the Chinese ride-hailing company Didi Chuxing.
“The settlement, mutually agreed by both sides, was fair and reasonable,” Matt Kallman, an Uber spokesman, said in a statement. “We’re disappointed in this decision and are taking a look at our options.”
Shannon Liss-Riordan, the lawyer representing the plaintiffs in the suit, did not immediately respond to a request for comment.
Liss-Riordan had offered to reduce her cut of the payout by nearly half to $11 million, after criticism that the proposed deal didn’t do enough for drivers.
“I want to help ensure that the drivers get the benefit of the settlement that I won for them,” the Boston labor attorney said in June. “I cut the fee in order to emphasize that this settlement was good for the class and was not about my firm’s fee.”
Liss-Riordan sued Uber in 2013 on behalf of about 385,000 current and former Uber drivers in California and Massachusetts, arguing the ride-hailing company should stop treating the drivers as freelancers and instead give them the pay and benefits afforded to employees.
Under a preliminary settlement reached in April, Uber agreed to pay $84 million to drivers — $100 million if the company goes public later on — in proportion to how many miles each drove. The company also agreed to stop removing drivers that refuse too many potential fares from its network, to only “deactivate” drivers for violating specific clauses in a new driver policy, and to stop suggesting to passengers that tips are included in its fares.
But a number of drivers and the federal judge overseeing the case questioned whether Uber made sufficient concessions. Analysts had described the deal as a win for Uber because it allowed the company to continue classifying its drivers as independent contractors. Some drivers had also blasted Liss-Riordan for proposing her firm receive a standard fee of 25 percent, or $21 million, while drivers are set to take home about $8,000 or less each. (The fee would increase to $25 million if Uber goes public.)
Liss-Riordan defended herself forcefully against both charges. The benefits of the settlement far outweigh the risks of taking the case to trial, she said, and any fee will compensate her and her staff for years of work.
“I am offended by the allegations that I settled the case for the fees,” she said in June. “I reached an agreement that I believe is in the best interests of the class. Anyone who has known me and followed my work over these years knows that.”
She also defended the contingency fee system in general, noting that such payouts “make it possible for low-wage workers to pursue these kinds of cases.” She noted that in previous class-action suits she has spearheaded, unfavorable rulings have resulted in her receiving no pay for thousands of hours of work.
Still, Liss-Riordan said, she decided to cut her fee substantially and give the difference to drivers as a sign of good faith — and to encourage the judge to approve the settlement.