In a 35 page Order issued on Thursday, August 18, Judge Edward M. Chen dealt a surprising blow in O’Connor v. Uber Technologies, Inc.:  he denied preliminary approval for a $100 million settlement. In no uncertain terms, Judge Chen said the current terms of the settlement are “not fair, adequate, and reasonable.” In the Order, Judge Chen noted that both the structure and amount of the settlement fail to pass muster. Specifically, Judge Chen discussed the pending 9th Circuit appeal regarding Uber’s arbitration clause. If the 9th Circuit finds Uber’s arbitration clause is valid, then around 90% of the plaintiff’s–and 90% of the settlement–would disappear.  Nevertheless, Judge Chen felt the value might be “at the low end of reasonable recovery” had the parties not included a Private Attorneys General Act (PAGA) waiver.

What does that mean? It means plaintiffs’ argument that their PAGA claim was worth up to $1 billion may have set the tone for reasonableness of the settlement. The current settlement structure allocates a meager $1 million to the PAGA claim, only 0.1% of the alleged potential verdict value, and Judge Chen said he “cannot find that the PAGA settlement is fair and adequate.”

Judge Chen also addressed another significant oversight in the settlement, whether drivers are employees or independent contractors. The looming uncertainty of whether Uber drivers are employees or independent contractors is a major risk to both parties. Although not fatal, the absence of any certainty appears to have played a role in Judge Chen’s decision.

This all spawns from a massive class-action lawsuit, O’Connor v. Uber Technologies, Inc., alleging Uber improperly classified drivers as independent contractors, depriving them of significant benefits and protections. On Thursday, April 22, the parties settled for $100 million.  As we noted here, this settlement left several questions unanswered.  Apparently Judge Chen felt the same way.  For now, the parties must take a few more laps around the negotiating table.