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Why San Diego Businesses Seek to Limit Class Action Lawsuits

Lately, there has been quite a bit of law enacted and cases decided with respect to class action lawsuits and waivers. Some have been mystified at all the effort and attention. But limiting class action lawsuits can be significant for San Diego and California businesses. Class action lawsuits are very expensive to defend and they can result in millions of dollars of liability. This article discusses a couple of cases that illustrate the legal and financial issues.

The first example is O’Connor v. Uber Technologies, Inc., Case No. 14-16078 (consolidated) (9th Cir. September 25, 2018). At one point in 2016, Uber was willing to settle the consolidated cases for $100 million. However, now in late 2018, Uber’s potential liability is estimated to be $10-20 million. What happened? Since the cases were filed, the US Supreme Court handed down its decision in Epic Systems Corp. v. Lewis, 137 S.Ct. 809 (2017). Epic Systems approved mandatory arbitration clauses for workers that contained class-action waivers. Based on Epic Systems, the US Ninth Circuit in O’Connor then held that the Uber drivers were compelled to arbitrate their claims and also affirmed that they had waived their rights to file class action suits.

As we noted in our earlier article, this was a huge win for Uber. In the 2015 complaints, Uber drivers sought to certify classes of more than 385,000 drivers. The lawsuits alleged that Uber violated federal and state labor laws by misclassifying drivers as independent contractors rather than employees. By the sheer numbers, one can see the massive down-side risk to Uber if the courts certified a class of all 385,000 allowing them to all pursue their claims. If the jury or court held each driver to be entitled to just $500 each, the resulting judgment would be nearly $200 million. Indeed, this is one reason that Uber was willing to settle the case back in 2016 for $100 million. See LA Times report here. However, the proposed settlement was rejected by the trial court, which stated that the proposed $100 million was “not fair, adequate, [or] reasonable” for the drivers.

Now, because the arbitration and class action waivers have been approved in Epic Systems, the number of plaintiffs will plummet from 385,000 to as few as 10,000. The reason is simple economics. Each employee’s claims are not large — maybe hundreds of dollars to the low thousands. Often, such small amounts are not justified by the amount of attorney time and litigation expenses that are necessary to properly prepare and win the cases. There is also the “inertia problem” — most people are not highly motivated to engage in litigation. Class action lawsuits avoid both “problems” by having the class representative engage in the litigation and by aggregating the claims so that the litigation expenses can be justified by the combined award. O’Connor demonstrates how limiting class action lawsuits via contractual waivers can significantly reduce business and financial risk.

Another example is the recent case California Supreme Court decision in  Troester v. Starbucks Corp., 5 Cal. 5th 829 (Cal. Supreme Court July 26, 2018). The plaintiff in that case alleged that he had been underpaid for work tasks that he performed after he clocked out. Over his 17 months of work, he claimed to have worked an extra 13 hours for which he was not paid. The amount he claimed was due to him $102.67. As important as $102.67 might be to Mr. Troester, in general, the amount is too small to justify the costs of litigation. However, as noted, the economic calculation changes if Mr. Troester can get a class action certified.

These examples illustrate why avoiding class action lawsuits is crucial. Expect to see many businesses revise their employment, consumer, and business contracts to include arbitration and class-action waivers. If this is something your business wants to explore, a good San Diego corporate attorney can help.

Contact San Diego Corporate Law

For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” four years running by and “Best of the Bar” by the San Diego Business Journal. Contact Mr. Leonard via email or by calling (858) 483-9200. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters.

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