The ruling, from the 9th US Circuit Court of Appeals in San Francisco, was made in a case in which drivers contend they are employees and entitled to reimbursement for expenses, including gas and vehicle maintenance. The drivers currently pay those costs themselves.
The results of Uber's legal battle could reshape the sharing economy, which is built around Internet companies that serve as marketplaces matching people who provide a service with others looking to pay for it.
(Also see: Taxi Owners, Lenders Sue New York City Over Uber)
Earlier this year, US District Judge Edward Chen in San Francisco said California drivers could sue as a group on the question of whether they are employees or contractors, and over their demand for payment of tips that were not passed on to them.
The 9th Circuit's order on Tuesday means litigation can continue before Chen, who has scheduled a trial for June 2016. Uber would still be able to appeal Chen's class certification ruling after the entire case is litigated in the lower court.
"We look forward to presenting the facts about how drivers use Uber with complete flexibility and control over their work to a jury," Uber attorney Theodore Boutrous said in a statement.
Shannon Liss-Riordan, an attorney representing the plaintiff drivers, said they are pleased with the 9th Circuit's decision and can focus on preparing for trial next year.
Class action status generally gives plaintiffs more leverage to negotiate a settlement. However, Chen also said Uber drivers who have worked for the service since May 2014 must specifically opt out of an arbitration agreement in order to sue the company.
According to Uber, that means a only a tiny fraction of a potential 160,000 California drivers are eligible to be class members.
The case is Douglas O'Connor et al v. Uber Technologies Inc, US District Court, Northern District of California, No. 13-3826.
© Thomson Reuters 2015