(Reuters) - Employers hate class actions. That’s why the business lobby has spent the past decade convincing the U.S. Supreme Court that employers have a nearly inviolable right to impose mandatory arbitration and class litigation waivers on their workers.

But companies also hate when masses of workers call their bluff and file individual demands for arbitration. I’ve told you before about mass arbitration campaigns against Uber and Lyft. When arbitration services told the ride-hailing companies that they owed millions in arbitration fees after thousands of drivers filed demands for individual arbitration, the companies balked - even though their contracts with drivers required payment of those arbitration launch fees. Prompted in part by the flap over Uber and Lyft arbitration fees, California last month enacted a law that will impose stiff penalties on companies that stall payment of contractually required arbitration fees.

Want more On the Case? Listen to the On the Case podcast.

So what’s the answer for companies that impose mandatory individual arbitration on their workers but don’t want to pay the fees when thousands of workers call their bluff and file arbitration demands?

A class action settlement, of course! That’s right: It turns out that when the alternative is worse, companies don’t really think class actions are so bad. Sure, they don’t want to litigate against hundreds of thousands of workers banded together in a class action. But they may be perfectly happy to use the very same vehicle to settle claims if they’re facing a mass arbitration campaign that’s going to cost them millions in fees just to launch cases. It’s a sheer business calculation.

But does a class action settlement forged in the crucible of a demand for mass arbitration best serve the company’s workers? And it is even permissable for a company that has required workers to waive the right to sue in class actions to turn around and say contractual class action waivers don’t apply when it’s the company that’s pushing for a class settlement?

Those are the key question facing Judge Anne-Christine Massullo of San Francisco Superior Court in a case involving the food and grocery delivery company Postmates. On Friday, Judge Massullo will preside over a fairness hearing on a proposed $11.5 million settlement of re-imbursement and wage claims by Postmates couriers represented by the well-known plaintiffs’ lawyer Shannon Liss-Riordan of Lichten & Liss-Riordan.

The plaintiffs’ firm Keller Lenkner – which says that it represents nearly 16,000 Postmates couriers, about 5,000 of whom have demanded arbitration against the company – opposes the proposed settlement. Keller Lenkner, which you may recall as the firm that led the mass arbitration campaigns against Uber and Lyft, has filed an objection asking Judge Massullo not to approve the proposed settlement and a motion to intervene in Liss-Riordan’s class action, arguing that Postmates is breaching its own contracts with couriers by attempting to use a class action to settle their claims on the cheap.

The tussle over the proposed Postmates settlement, as I’ll explain, has become quite personal – and quite heated. But if you step back from the vitriol, the case crystallizes issues that are going to arise more and more often as plaintiffs’ lawyers become more adept at turning companies’ mandatory arbitration provisions into a weapon of mass arbitration.

POSTMATES’ PAGA LAWSUIT

The Postmates story began in July 2018, when Liss-Riordan’s firm filed a complaint in state court in San Francisco, asserting claims under California’s Private Attorney General Act that Postmates misclassified couriers as independent contractors. Liss-Riordan’s firm also filed a prospective class action with the same claims.

Postmates moved to compel arbitration in both the PAGA case and the class action. It succeeded in forcing the named plaintiffs in the class action into arbitration but failed to compel arbitration in Liss-Riordan’s PAGA case. As you’ll see, that turned out to be very important.

Keller Lenkner, meanwhile, was amassing a client base of Postmates couriers. Last March, it informed Postmates that it already represented at least 3,000 couriers who planned to initiate individual arbitration against the company and was signing more every day. Postmates’ arbitration fees, Keller Lenkner warned, would exceed $20 million. It invited Postmates to begin discussions of an alternative resolution of its clients’ claims.

Postmates agreed to discussions but had serious reservations. According to a June 17 declaration from Gibson Dunn’s Theane Evangelis, her side “has repeatedly raised concerns regarding whether Keller Lenkner actually represents each of the purported claimants it claims to represent.” Postmates also questioned whether all of Keller Lenkner’s clients actually drove for the company.

When early settlement talks failed, Keller Lenkner filed two batches of arbitration demands for more than 5,000 California Postmates clients with the American Arbitration Association (AAA) in April and May. The firm’s clients paid a total of about $100,000 to cover their share of the fees to launch cases. AAA informed Postmates that under its standard fees schedule, the company owed about $11 million to start the more than 5,000 cases.

Postmates argued that Keller Lenkner’s demands did not satisfy the company’s contractual requirements, which specify that arbitration demands must include individual facts, not generic allegations. The company also proposed arbitrating a sample of the Keller Lenkner cases. No agreement was struck. AAA set a May 31 deadline for Postmates to pay the fees to launch its couriers’ cases, informing Postmates that its concerns about the filings could be resolved by the arbitrator once the cases began.

In June, Keller Lenkner sued in federal court in Oakland to compel Postmates to pay the AAA fees and launch arbitration. Postmates, in turn, sought to compel Keller Lenkner to refile its clients’ demands with individual facts and legal theories. On Oct. 22, U.S. District Judge Saundra Brown Armstrong of Oakland ordered Postmates to arbitrate its couriers’ demands.

The judge held that the fee payment was a matter to be decided by AAA. She did, however, point out the irony of Postmates’ assertion that Keller Lenkner is using arbitration fees as leverage to obtain a settlement. It was Postmates, she said, that forced couriers to submit their claims as one-by-one arbitration demands. The couriers, she said, were only following the rules imposed by the company. So the bill for millions of dollars in fees, she wrote, “is a direct result of the mandatory arbitration clause and class action waiver that Postmates has imposed upon each of its couriers.”

But Postmates had an out: Even as it was wrangling with Keller Lenkner at the AAA and in Oakland federal court, the company was negotiating with Liss-Riordan in the still-alive PAGA case in San Francisco Superior Court. In late September, Liss-Riordan informed the court that Postmates had agreed to an $11.5 million global settlement – not just of the PAGA claim but also individual claims by Postmates’ 380,000 couriers in the class.

‘HARD CASH’ DEAL

The settlement, as Liss-Riordan and Postmates emphasized in subsequent filings, builds in protections for couriers who have sought or may prefer to proceed with arbitration. Class members can opt out of the class action, although they must sign individual opt-out statements instead of relying on lawyers from Keller Lenkner to file opt-out documents in their name. And couriers who have already brought arbitration demands are entitled to enhanced damages if they remain in the class. The point of the deal, Liss-Riordan said, is to get hard cash quickly to the scores of thousands of couriers who don’t want to go through the arbitration process.

After Keller Lenkner filed its briefs objecting to the class settlement and asking to intervene in the case, Liss-Riordan and Postmates told Judge Massullo to be wary. “Although Keller Lenkner purports to be acting in the best interest of over 16,000 alleged couriers, evidence has surfaced casting substantial doubt on whether Keller Lenkner in fact represents many of those couriers,” wrote Postmates. The company has claimed that Keller Lenkner has not adequately vetted its client base, claiming to represent couriers who may not understand the implications of whatever agreements they signed or may not even have been actual Postmates couriers. Postmates also contends that Keller Lenkner, a 15-lawyer firm, simply does not have the capacity to arbitrate thousands of cases.

Liss-Riordan said in her opposition to Keller Lenkner’s intervention that the other plaintiffs’ firm is trying to muscle in on the settlement to get a share of attorneys’ fees. In an interview, Liss-Riordan said that she, and not Keller Lenkner, pioneered the tactic of using arbitration demands as leverage to force defendants into negotiations. “We fight incredibly hard for our clients, in court and in arbitration, and will only agree to a resolution when we believe it’s in our clients’ best interests,” she said.

Keller Lenkner called the accusation a “smear” to distract from the settlement’s fatal flaws. Keller Lenkner’s Travis Lenkner said in an email that his firm stands ready to produce any or all of its retention agreements to Judge Massullo. “It is telling that Postmates and Ms. Liss-Riordan would rather lob baseless accusations about our engagement letters with our clients than confront the arguments that their back-room settlement deal is unfair, unreasonable and unlawful,” he said.

More fundamentally, Keller Lenkner argues that the settlement would allow Postmates – and, presumably, any other company that mandates arbitration – to whipsaw workers who have found a way to take advantage of rules those companies have imposed upon them. A contract is a contract, Keller Lenkner argues. Postmates demanded that its couriers arbitrate their claims. It ought to be stuck with the consequences of that demand and not allowed to use a class action to change the rules.

Postmates counsel Evangelis of Gibson Dunn responded that there’s nothing unusual about Postmates’ use of a class action to settle couriers’ claims, even though its contract bars workers from suing as a class. Postmates entered into, and received court approval for, a similar settlement in 2017, Evangelis said. And other gig economy companies with mandatory arbitration provisions have also won court approval for class action settlements with their workers.

It’s certainly true that Postmates isn’t forcing anyone to participate in the settlement, which allows couriers to opt out. Does the opt-out requirement impinge on couriers’ contractual right to arbitrate - and to force Postmates to pay the fees to launch their arbitration cases?

Judge Massullo is going to have a lot to think about.