In an order handed down today in San Francisco, US District Judge Edward Chen said that, despite changes to its policies that Uber was ready to enact, the proposed settlement on the whole "is not fair, adequate, and reasonable." Had it been approved, the agreement would have impacted about 385,000 Uber drivers California and Massachusetts involved in the class-action suit.

At the heart of the case is whether Uber is right to classify its drivers as independent contractors or if the law requires the company to recognize them as true employees. The plaintiffs argued that Uber should classify them as employees, and as such they deserved mileage and tip reimbursement. As independent contractors, drivers today shoulder those expenses themselves. Reclassifying them threatened Uber's business model by posing the possibility of significant added costs.

The settlement amount agreed to by the parties represented a "substantial discount" far below the potential total damages Uber drivers could claim, Chen said. (The plaintiffs calculated the potential damages at more than $850 million.)