Photo: Jason Doiy / ALM

SAN FRANCISCO – A federal judge Thursday rejected an $84 million settlement that would have wiped away a slew of lawsuits facing Uber Technologies Inc. over its treatment of drivers as contractors, bringing renewed uncertainty to a legal fight that has dogged an icon in the gig economy.

U.S. District Judge Edward Chen of the Northern District of California in an order Thursday concluded that the peace pact—which affects roughly 400,000 drivers in California and Massachusetts—“as a whole is not fair, adequate, and reasonable,” and denied a motion for preliminary approval.

Chen had critical words for all of the deal's elements, saying the money it gives drivers reflects a “substantial discount” from what they could receive if the suits were successful. He also knocked the non-monetary elements of the settlement as “not as valuable as the parties suggest.”

But the judge seemed most unhappy with the amount of money that the settlement allocated for claims brought under California's Private Attorneys General Act, or PAGA, a statute that allows plaintiffs' lawyers to sue on behalf of the state for potentially huge penalties.

Reiterating a criticism he made during a hearing in June, Chen pointed out that the $1 million allocated to PAGA claims is a far cry from the $1 billion in penalties that Shannon Liss-Riordan, who sued Uber on behalf of drivers in 2013, estimates is the company's exposure if a jury decided drivers are employees.

“Plaintiffs propose settling the PAGA claim for 0.1 percent of its estimated full worth … The parties have failed to demonstrate how the Hanlon factors or any other coherent analysis justifies settling the PAGA claim for such a relatively meager value,” Chen wrote, referring to a case that set out parameters for courts to evaluate settlements.

The rejection of the deal is the latest twist in the saga of Uber and Liss-Riordan, a Boston plaintiffs attorney who has come after the company and other players in the gig economy over their classification of workers as independent contractors rather than employees.

After announcing the settlement in April, Liss-Riordan was assailed by a host of other attorneys in the plaintiffs bar who argued that she had sold out the class to enrich herself. The named plaintiff in the California class action, Douglas O'Connor, objected to the settlement and got new lawyers.

Liss-Riordan, in turn, dropped her fee request by $10 million—slicing her portion almost in half.

Chen's denial of the settlement motion may not mean the deal is dead. In a statement late Thursday, Liss-Riordan said she was disappointed but also seemed upbeat about potentially reaching a new deal—if Uber is willing to throw more money on the table.

“It is possible the parties could reach a revised agreement that satisfies the court's concerns regarding the PAGA claims,” she said in an email. “But if not, as I've said before, I will take the case to trial and fight my hardest for the Uber drivers.”

Matt Kallman, a spokesman for the company, did not go into detail on the company's next steps. “The settlement, mutually agreed by both sides, was fair and reasonable,” he said in a statement. “We're disappointed in this decision and are taking a look at our options.”

REAL RISKS

On the non-monetary parts of the deal, Chen particularly attacked provisions removing restrictions on Uber drivers asking for tips—noting that Uber has refused to include an in-app tipping function—and the fact that a new appeal process the company agreed to create would not allow review of deactivations for low star ratings.

But aside from PAGA, Chen offered signals that he sees the money allocated for the other claims as reasonable given the significant risks facing Liss-Riordan's suits. He also largely agreed with her that many of the claims—such as overtime and meal break claims—that would be settled out by the deal had almost no chance of being successful.

One of the biggest risks, he noted, is the fact that the U.S. Court of Appeals for the Ninth Circuit has signaled it may reverse decisions he made in a separate lawsuit that found Uber's arbitration agreements unenforceable.

“A finding that one or both of the arbitration clauses is valid and enforceable would substantially change the scope and course of plaintiffs' case, as it would likely require the vast majority of the class to go to arbitration on their non-PAGA claims, thus jeopardizing the scope and potential viability of the class action at bar,” Chen wrote.

In light of this dynamic, Chen went on to say that even though drivers were taking a roughly 90 percent discount on the expense reimbursement and unpaid tips claims at the center of Liss-Riordan's cases, the settlement may still be “fair and adequate.”

“Indeed, while at the low end of reasonable recovery, the court would be inclined, after weighing the Hanlon factors, to find the consideration afforded by the settlement to be adequate for release of the non-PAGA claims,” he wrote.

But a key outstanding question is whether, in light of the Ninth Circuit threat, Uber—represented by Gibson, Dunn & Crutcher in the litigation—is willing to put forward the money that it may take to settle the case.

David Lowe, a plaintiff-side employment attorney at Rudy, Exelrod, Zieff & Lowe who is not involved in the case, said that decision will likely hinge both on sum in question—and on whether Uber still perceives a serious risk to its business model in continuing to litigate the case

“If it's a small amount of money that it would take to satisfy Judge Chen, then it may [try to revive the settlement],” Lowe said. “If it's a very substantial amount, then Uber may not be willing to do that.”