(Bloomberg) -- Uber Technologies Inc.may come out ahead by failing to win court approval of a $100million settlement with drivers.

Even before a San Francisco federal judge rejected the deal onThursday, the drivers’ lawyer said the ride-hailing giant may havethe upper hand to walk away from further negotiations because anappeals court hinted that it might overrule a key pretrial rulingin the fight over whether drivers must be treated as employees.

Calif. case & Uber's gig-economy model

If the three-year-old lawsuit collapses, the world’s most valuabletechnology startup would escape without any significant changes toits business model or financial sacrifice while keeping hundreds ofthousands of California and Massachusetts drivers classified asindependent contractors.

While Uber faces driver lawsuits elsewhere, as well aschallenges to its pricing and business practices, the Californiacase was seen as the most likely to upend its gig-economy workforcemodel because of the state’s relatively tough labor laws.

Before an appeals court added a new wrinkle to the Californiacase, the biggest task for drivers’ attorney Shannon Liss-Riordan was to convinceU.S. DistrictJudge Edward Chen that the agreement she reached with thecompany in April is fair and reasonable. Dozens of drivers andother lawyers claimed the deal would let Uber off the hook tooeasily.

Liss-Riordan told Chen in a June 17 filing that if the U.S.Court of Appeals overturns a ruling by him that invalidated Uber’sarbitration agreements with drivers in a different case, the resultwould be to eviscerate her class action, reducing it to “a fewthousand drivers.”

The three-judge panel’s comments and questions at a June 16hearing showed that it may be poised to overrule Chen, and eventhat “leaning” may give Uber leverage and dramatically diminishLiss-Riordan’s “ability to negotiate modifications to theagreement,” she said.

Change to tipping policy

While acknowledging the risk a trial presents for both Uber and thedrivers, Chen rejected the deal as unfair. He said he wasn’tconvinced that the change to the tipping policy will result in the“substantially increased income” promised byLiss-Riordan.

“The settlement, mutually agreed by both sides, was fair andreasonable,” Matt Kallman, an Uber spokesman, said in anemail.“We’re disappointed in this decision and are taking a look atour options.”

Fighting on

A legal scholar who’s been following the case said Uber may nowdecide that rather than negotiate with Liss-Riordan, it’s betteroff trying to force the vast majority of drivers she representsinto arbitration, where the company can fight them one-on-one.

“There’s a good chance that the parties would be unable to reacha new settlement — at least not one that covers all 385,000drivers now in the class,” Charlotte Garden, an associate professorat Seattle University School of Law, said before Thursday’sruling.

Related: Drivers for Uber, Lyft operate their cars moresafely, report says

Uber and Liss-Riordan were roundly attacked in court filings andat a June 2 hearing before Chen over claims the agreement benefitedthem at the expense of drivers.

While Liss-Riordan argued that she negotiated the best dealpossible and faced a significant risk of recovering nothing fordrivers at a trial, she later offered to cut $10 million from her$25 million fee request and earmark that money for drivers.

Uber agreed as part of the April deal to let drivers solicittips and allot payouts based on the miles they’ve driven. Chenquestioned whether a broad provision in the settlement releasingthe company from liability for violations of labor laws “hijacked”claims for minimum wage, overtime and workers compensation thatdrivers are pursuing in other cases.

‘Global peace’

Liss-Riordan told the judge that Uber wouldn’t have gone along withthe settlement without a guarantee of “global peace.” She said shemade a strategic decision to focus on mileage reimbursement andtips claims because they were most likely to succeed if the casewent to trial.

Ted Boutrous, a lawyer for Uber, said at the hearing that“there’s no incentive for Uber to settle” without releasesextinguishing all claims stemming from the core dispute overwhether the drivers are employees or contractors.

Related: Uber settles class actions over safetyclaim

On June 23, Lyft Inc., the largest U.S. ride-hailingcompany behind Uber, moved a big step closer to sealing its $27 million deal with drivers thatleaves them classified as independent contractors when thesettlement won preliminary approval from another judge in the samecourthouse as Chen.

U.S. District Judge Vince Chhabria in April had rejected anearlier $12.5 million offer, saying it shortchanged drivers becauseit didn’t properly account for the company’s rapid growth. WithChhabria’s approval, about 163,000 current and former Californiadrivers will be told they can claim their share of the settlement,object to it or opt out, before a final settlement hearing.

The Uber case is O’Connor v. Uber Technologies Inc.,13-cv-03826, U.S. District Court, Northern District of California(San Francisco). The Lyft case is Cotter v. Lyft Inc.,13-cv-04065, U.S. District Court, Northern District of California(San Francisco).

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.