By Carolyn Said

A U.S. judge in San Francisco on Thursday rejected a proposed $100 million settlement of a class-action lawsuit by Uber drivers who had sought employee status.

U.S. District Judge Edward Chen said the settlement for 385,000 Uber drivers in California and Massachusetts "is not fair, adequate, and reasonable." If the drivers were to prevail in a trial, fines assessed by the state might exceed $1 billion, Chen wrote.

The drivers had said they were misclassified as independent contractors rather than employees and should be entitled to compensation for expenses such as gas and maintenance, as well as tips for previous trips. Uber fiercely resists the notion of making the drivers employees, saying that would undercut its business model and hurt the flexibility that drivers prefer.

The proposed settlement, first announced in April, left the drivers as independent contractors and included some procedural changes at Uber. The ride-hailing company said it would provide more information and recourse when it "deactivated" or terminated drivers, and would fund peer-led driver associations in California and Massachusetts and meet with them quarterly to discuss driver concerns. Uber also agreed to clarify to passengers that tips are not included in fares.

The cases are O'Connor vs. Uber in California and Yucesoy vs. Uber in Massachusetts.

The proposed settlement was for a minimum of $84 million, with an additional $16 million payout after a successful Uber public offering on Wall Street.

The proposal, under which many Uber drivers would have received as little as $24 each, was already under fire by some drivers, including Douglas O'Connor, the lead plaintiff in the California case. The deal "is not in my interest or in the interest of any Uber driver," O'Connor said in a court filing in May.

Meanwhile, Uber drivers may be on the verge of losing a key ruling that would undercut future legal actions.

The Ninth Circuit Court of Appeals recently indicated that it may uphold Uber's mandatory arbitration requirements for drivers. That would prevent the drivers from banding together in a class action, instead requiring each one to separately seek redress. Chen had previously ruled that Uber's arbitration clauses were unenforceable, which allowed the case to proceed as a class action.

In a similar case brought by Lyft drivers, U.S. District Judge Vince Chhabria in June granted preliminary approval to a $27 million settlement, after earlier rejecting a $12.25 million deal as inadequate.

Driver attorney Shannon Liss-Riordan did not immediately respond to requests for comment.

Uber said in a statement that it was disappointed in the ruling. "The settlement, mutually agreed by both sides, was fair and reasonable," it said.

(c)2016 the San Francisco Chronicle