August 21, 2017 / 3:18 PM / a year ago

Holding: The law rides shotgun on Uber obfuscation

NEW YORK (Reuters Breakingviews) - With the law riding shotgun, Uber is on an open road to obfuscation. Whether the ride-hailing service illegally fixed prices, for example, may now remain a secret after a court last week ordered the issue resolved in arbitration. It’s the same deal with whether drivers were stiffed on expenses; sexual-harassment claims against the company are also subject to confidential proceedings. Making the $68 billion firm fess up is mighty tough when the courts and others allow it to operate in the shadows.

Uber drivers' cars are parked outside the Ministry of Transportation building during a protest in Taipei, Taiwan February 26, 2017. REUTERS/Tyrone Siu - RTS10DH2

Much of the world may be focused on major shareholder Benchmark Capital’s lawsuit to oust former Chief Executive Travis Kalanick from the board. But that’s not the only big case afoot. Connecticut passenger Spencer Meyer has claimed that Uber and Kalanick illegally conspired with drivers to impose high fees - so-called surge pricing - during periods of peak demand. Truly competitive drivers would grab business by undercutting their rivals, the class-action complaint says, rather than charge identical rates set by an algorithm.

The company tried to squelch the suit last year, claiming a hyperlink in an online contract’s fine print notified passengers that they had to resolve any disputes out of court in private arbitration. U.S. District Judge Jed Rakoff rejected the claim, saying the notice was too easily missed. Uber appealed, and on Thursday the appeals court agreed with the company and sent the case to arbitration, saying that if an app user didn’t “bother reading the additional terms, that is the choice the user makes.” Meyer’s only shot is to argue that Uber waived arbitration by starting to fight his lawsuit in court.

Price-fixing allegations aside, Uber has done nothing wrong, or at least illegal, here. Sure, almost no customers or employees may notice the hyperlinks and tiny words in turgid language that can block their constitutional right to haul Uber or lots of other companies to court.

That may be intentional: if they did notice, many would be outraged. Arbitration is arguably cheaper and faster than lawsuits, and outcomes are usually confidential, which is why companies like it. But it typically deprives individuals of legal rights, adequate recompense and the ability to band together and share the costs of suing. Courts eager to clear their dockets almost always enforce arbitration agreements, even when the terms are essentially hidden.

The cost to the public of behind-closed-doors settlements can be high. If Uber and Meyer had battled in open court, for example, the legality of surge pricing might have become clearer, with significant implications for not only Uber but also other companies that wanted to try it. Instead, the dispute’s outcome will probably be kept under wraps and may have little effect on the company’s behavior while providing no legal guidance to the market.

The ride-hailing service is also in a protracted fight with its drivers over their employment status. The company classifies them as independent contractors, but they claim to be employees entitled to benefits like reimbursement for gasoline, vehicle maintenance and other expenses and have sued en masse in California, Massachusetts and other states. The difference between employees and independent contractors is an important and largely open legal question, especially in the growing gig economy, where companies often count on the cheap labor of independent contractors.

That question may, however, never be publicly answered in these cases, because many and perhaps all of the drivers are bound by arbitration agreements, depending on the results of various appeals.

Another high-stakes battle pits Uber against women employees who have claimed sexual harassment and other types of gender discrimination. Most will probably never get their day in court because they also signed arbitration agreements - although the company says employees can now opt out within 30 days.

As the 2015 trial of Ellen Pao’s discrimination suit against venture capital firm Kleiner Perkins Caufield & Byers suggested, Silicon Valley’s self-professed inventive and entrepreneurial superiority has alienated many women. A jury rejected Pao’s claims, but their public airing in court may have helped humble the tech world, if not bring it into legal compliance.

For its part, Uber responded swiftly and firmly to harassment allegations against it, hiring former Attorney General Eric Holder and a law firm to investigate, with Holder also looking at company culture and practices. The report finalized in June prompted the firing of 20 employees and other measures like management training. Kalanick also quit as CEO. But the report remains confidential, despite board member Arianna Huffington’s pledge in March to make Holder’s findings public, leaving what actually happened in question.

The answer seems particularly pressing, given Uber’s size and prominence and its involvement in a slew of legal spats. Among them are a trade-secrets lawsuit filed by Waymo, the self-driving car unit of Google parent Alphabet, a federal probe into software that helps drivers dodge police and two lawsuits alleging that drivers harassed women. Then there’s the company’s history of run-ins with foreign and local regulators and taxi unions. It’s fair for investors, customers, drivers, employees and pretty much everyone else to ask what’s going on.

Benchmark’s lawsuit might eventually offer some details, though it’s focused on easing Kalanick into the sunset. There’s also another potential problem: his new lawyers are trying to force the case into arbitration.


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