Judge Pauses Uber Stock Case While SCOTUS Acts

SAN FRANCISCO (CN) – A federal magistrate on Thursday denied a request by Uber to force its employee to arbitrate individual claims that it cheated workers out of valuable stock options, but stayed the class action until the U.S. Supreme Court decides a similar case.

“If it looks like we’re going to get any certainty (from the Supreme Court’s decision), maybe I’ll lift the stay at some point,” U.S. Magistrate Judge Jacqueline Scott Corley said at the Thursday hearing.

Lead plaintiff Lenza McElrath, a senior software engineer from Washington state, sued Uber in federal court in December 2016. According to the class action, Uber lured prospective employees by promising them higher-value stock options than it actually gave them.

McElrath says he relocated to the Bay Area to work for Uber over a competing tech firm based on its offer to give him incentive stock options, or ISOs, which are more valuable than nonqualified stock options because they aren’t taxed as earnings when they’re exercised.

He says Uber deprives its employees of the promised ISOs shortly after they sign on in order to get a “large” payroll-tax deduction.

At issue on Thursday was a 2014 arbitration agreement McElrath signed when he was hired, which contains a severable class action waiver requiring him to arbitrate on an individual basis any claims arising out of his employment with Uber.

Uber contends that compelling arbitration of McElrath’s individual claims conforms with an August 2016 decision by the Ninth Circuit in Morris v. Ernst & Young because the class waiver is severable from the arbitration agreement.

In Morris, the appellate court ruled an employer can’t require workers to sign an arbitration agreement that prohibits them from suing on behalf of a class over the terms of their employment.

However, the Second, Fifth and Eighth Circuits have disagreed with that finding, holding instead that class waivers like the one McElrath signed are legal.

The Supreme Court plans to review the case sometime this year to resolve the circuit split between the Seventh and Ninth Circuits on the one side, and the Second, Fifth and Eighth Circuits on the other.

Corley focused her Thursday ruling squarely on Morris, concluding that McElrath’s case should be stayed until the Supreme Court issues its decision.

“There’s no guarantee that we’ll get anything definitive out of the decision,” she said. Nevertheless, “we should stay the case, and in this case I don’t see any prejudice to the class because it’s a written contract case. It says what it says.”

But she allowed McElrath to serve discovery on Uber while the case is stayed so that Uber is “on notice explicitly that everything needs to be preserved.”

The ruling came after McElrath’s attorney Scott Erlewine protested the stay in order to conduct discovery.

Erlewine told the judge his client had stayed a Private Attorneys General Act case against Uber in San Francisco Superior Court last month so that he could pursue discovery in the federal case.

After the state court sustained parts of Uber’s demurrer in December 2016, McElrath filed the federal class action asserting claims for breach of contract and violations of state labor and unfair competition laws, among other grievances.

Corely was unsympathetic.

“The reason you’re here is Morris,” she told Erlewine. “There is a conflict in the circuits and no one can tell me with any certainty what the outcome will be.”

She continued: “Go back to state court and do that there. The issue is, we have an arbitration agreement, we have the [Federal Arbitration Act], we have Morris; it’s a unique situation. I will permit you to serve discovery or you can go back to state court and do that as well.”

Erlewine is with Phillips, Erlewine, Given & Carlin in San Francisco. Uber is represented by Patrick Gibbs with Cooley LLP in Palo Alto, California.


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