Labor & Employment Law Daily Wrap Up, ARBITRATION—7th Cir.: Uber denied bid to relitigate arbitration issue already decided in driver’s favor in state court, (Aug 27, 2025)

By Marjorie Johnson, J.D.

Though a federal judge interpreted a consequential the arbitration provisions differently as to three other drivers and compelled them to arbitrate, “Uber had an opportunity to litigate this issue before the state court; it lost.”

The Seventh Circuit affirmed a district court’s decision finding that, even though a contractual provision narrowing three Uber drivers’ ability to opt out of their mandatory arbitration agreements meant that they must arbitrate their FLSA and state law misclassification claims, Uber could not compel a fourth plaintiff to arbitrate his claims since an Illinois judge considered the identical issue in a case the driver previously brought in state court against Uber, but had concluded that the disputed provision was ineffectual to void his exercising of his right to opt out of arbitration. Acknowledging “the superficial inconsistency,” the Seventh Circuit nevertheless concluded that issue preclusion blocked Uber from relitigating the issue (Agha v. Uber Technologies, Inc., No. 24-1749 (7th Cir. Aug. 26, 2025)).

Federal lawsuit. The instant action was brought by four drivers who claimed Uber violated the FLSA and Illinois wage laws by misclassifying them as independent contractors, rather than employees, and thus failed to pay them the statutorily mandated minimum wage, overtime, and business expenses. They also sought to conditionally certify a class of similarly situated drivers.

In response, Uber asked the district court to compel the drivers to arbitrate their claims under the Federal Arbitration Act (FAA) and the Illinois Uniform Arbitration Act (IUAA), citing the arbitration provisions contained in their driver agreements.

Driver agreements. Uber requires that drivers agree to a Platform Access Agreement (PAA) before providing transportation services through Uber’s platform. Each PAA includes a mandatory arbitration agreement.

Opt-out provision. The PAAs also contain a provision which permits drivers to opt out of mandatory arbitration within 30 days. Hower, Section 13.8(c) of the PAAs appears to narrow this opt-out right by stating in relevant part: “If you opt out of this Arbitration Provision and at the time of your receipt of this Agreement you were bound by an existing agreement to arbitrate disputes that existing arbitration agreement will remain in full force and effect.” All four plaintiffs entered into a number of PAAs on various occasions (when, for example, Uber updated the PAA’s terms).

State court action. Before joining this action, one of the four plaintiffs filed suit against Uber in Illinois state court alleging that, in 2023, Uber had violated a provision of the Chicago Municipal Code by terminating his access to the Uber Driver App after a background check had revealed prior arrests. He sought injunctive relief requiring Uber to allow him to use the App and barring Uber from considering his prior arrests in deciding whether he could access the App. Uber moved to compel arbitration of his claims.

Illinois judge denies bid to compel arbitration. Notably, the driver entered into PAAs in 2020, 2021, and 2022. He did not opt out of the arbitration agreement after agreeing to the 2020 PAA, but he did exercise his opt-out right after entering into the 2021 and 2022 PAAs. In seeking arbitration, Uber argued that Section 13.8(c) made clear that the arbitration provision from his 2020 PAA still applied to his claim despite his opt-out under the 2022 agreement.

The state court disagreed, reasoning that such an interpretation of Section 13.8(c) would nullify the driver’s unambiguous right to opt out of the arbitration provision in the 2022 PAA and render the opt-out provision meaningless. About two months later, the parties settled the case, and the lawsuit was dismissed. Afterwards, the driver joined three plaintiffs in filing the current lawsuit in federal district court.

Bid for arbitration federal court. As it did in the state court case, Uber argued that all four drivers had entered into at least one arbitration agreement that was still binding, even if they had opted out of subsequent ones, since Section 13.8(c) provided that opting out of one arbitration agreement does not nullify the prior ones. In response, the drivers argued that the FAA did not apply to Uber drivers and that the arbitration provisions were unenforceable under Illinois law.

The fourth driver also argued that Uber was bound by the state court’s ruling under the doctrine of issue preclusion. The district court agreed and denied Uber’s motion as to that driver. However, the court took a fresh look at Section 13.8(c) as to the other three drivers and held that their subsequent opt-outs did not invalidate prior agreements to arbitrate with Uber. Thus, the court granted Uber’s motion to compel those drivers to arbitrate their claims. While they did not challenge that decision, Uber appealed the district court’s denial of its motion as to the fourth driver.

Issue preclusion. Section 1738 of Title 28 requires federal courts to give state court judgments the same preclusive effect as they would be given under the law of the rendering state. Uber’s sole argument was that the issue preclusion did not apply since the issue decided by the state court was not identical to the issue the district court faced here. The Sevent Circuit disagreed.

Identical issue. The state court decided that the driver’s agreement to arbitrate in 2020 did not apply to a claim that arose during the period governed by the 2022 PAA. Instead, such a claim was governed solely by the 2022 arbitration provision, which was the subject of the driver’s 2022 opt-out. “That was the exact issue before the district court,” stated the Seventh Circuit. And while Uber also argued that the state court decided the arbitration issue under state law instead of the FAA, it failed to explain how the two standards were different, and the question before the district court was the same question decided by the state court.

“The remaining elements of issue preclusion are uncontested and easily satisfied,” the Seventh Circuit concluded. The state court decision constituted a final judgment on the merits since, under Illinois law, issue preclusion may apply to determinations made prior to the entry of a settlement agreement. The state court’s order denying Uber’s motion to compel arbitration of the driver’s claims “fits the bill.”

“Superficial inconsistency.” The Seventh Circuit acknowledged “the superficial inconsistency” in enforcing the 2020 arbitration agreements as to the other three other drivers. Nevertheless, the doctrine of issue preclusion promotes important goals, and “Uber had an opportunity to litigate this issue before the state court; it lost. It does not get another bite at the apple.”

The case is No. 24-1749.

Judge: Lee, J.

Attorneys: Shannon Erika Liss-Riordan (Lichten & Liss-Riordan, PC) for Mazen Hasan Agha. Matthew J. Ruza (Littler Mendelson PC) for Uber Technologies, Inc.

Companies: Uber Technologies, Inc.

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