A federal class action essentially asking whether Uber drivers should be classified as employees instead of contractors was dealt a major blow when a federal appeals court put the brakes on the closely watched lawsuit. The Tuesday move (PDF) by the 9th US Circuit Court of Appeals will set aside a June trial representing as many as 240,000 current and former Uber drivers in California that was scheduled in San Francisco federal court.

Uber had appealed a federal judge's decision last year certifying the class, saying the ruling paved the way for a "runaway class action." The ride-hailing company, based in San Francisco, said riders agreed to arbitration clauses as a condition of employment. If Uber prevails, that means each driver likely would have to independently arbitrate their claims in a bid to be treated as an employee instead of a contractor. That would amount to a major victory for Uber and a big blow to Uber drivers. In its one-page order, the 9th Circuit cited a 2005 precedent that said appeals courts should intervene in class-action certification decisions if they are "manifestly erroneous." The appeals court said it would hear the challenge this summer.

The California Labor Commission in June set a precedent and sided with a single Uber driver that complained she should be classified as an employee.

Uber said it is "pleased" with the appellate court's decision. The lead lawyer representing the class, Shannon Liss-Riordan of Boston, did not immediately respond for comment. The case has wide-ranging implications for the so-called "sharing economy." If all Uber drivers suddenly were classified as employees rather than contractors, they could be entitled to a number of benefits like unemployment compensation, workers' compensation, the right to unionize, and, among others, the right to seek reimbursement for mileage and tips. The outcome also has major implications for Uber, like its bottom line and its reported $50 billion valuation.

Still, the fact that Uber has classified its employees as contractors has come back to haunt the company. Days ago, a federal judge in another case green-lighted a price-fixing lawsuit against Uber co-founder Travis Kalanick. The New York federal court challenge alleges that Uber's algorithm unlawfully coordinates fares and surge-pricing fares in violation of US antitrust laws. That case seeks class-action status. Drivers don't compete with one another on fare prices. Instead, they are tallied by an algorithm. The lawsuit alleges that this business model violates antitrust law because Uber classifies its drivers as independent contractors, but they don't compete on fare pricing.