Uber’s $100M Settlement Doesn’t End On-Demand Economy Worker Debate

Uber has agreed to pay up to $100 million to settle two class-action lawsuits brought by drivers in California and Massachusetts, a move that keeps its low-cost business model intact and could have ripple effects throughout the app-enabled, on-demand services industry.

Uber’s settlement allows it to continue classifying its drivers in those two states as independent contractors, not employees. That’s a big win for the company, which has argued it is merely a technology firm whose app connects users looking for a ride with private drivers who own their cars. If the cases had gone to trial and Uber lost, its business costs could’ve risen an estimated 30 percent if the company had been required to cover drivers’ work expenses, payroll taxes, unemployment insurance, and other costs.

In the settlement, Uber also agreed to several changes in its driver policies (more on that in a minute).

The fight over whether drivers ought to be classified as employees is not over, said Shannon Liss-Riordan, a Boston attorney representing drivers in the two cases. She’s also representing workers in several related on-demand economy lawsuits involving other companies.

“Importantly, the case is being settled—not decided,” Liss-Riordan said in a prepared statement released to the media. “No court has decided here whether Uber drivers are employees or independent contractors, and that debate will not end here.”

The settlement doesn’t apply to driver classification outside of California and Massachusetts. Uber is fighting similar cases in places like Florida, Arizona, and Pennsylvania, the New York Times reported. And the company is appealing a California ruling that a former driver, Barbara Ann Berwick, should’ve been designated an employee instead of a contractor.

Uber will pay $84 million to the approximately 385,000 California and Massachusetts drivers represented in the cases. It will dole out another $16 million if the company goes public and its average valuation is at least one and a half times greater than its previous private valuation (reportedly $62.5 billion in December), or it gets acquired within three years of the final settlement for more than one and a half times the most recent private valuation.

The settlement seems like a relatively small price for Uber to pay to protect its business model. But Liss-Riordan said it’s one of the largest settlements ever in a worker classification case. The payout and the attention the lawsuit has drawn to the issue send “a stern warning to companies who play fast and loose with classifying their work force as independent contractors, who do not receive the benefits of the wage laws and other employee protections,” she said in the prepared statement.

The settlement comes as other startups offering on-demand services have moved toward classifying some or all of their workers as full-fledged employees. Last June, grocery-delivery startup Instacart began allowing its personal shoppers to switch from contractor to part-time employee status. Others, like technology product delivery and setup company Enjoy, have opted to hire a staff of full-time employees who receive full benefits. Homejoy, meanwhile, shuttered its on-demand cleaning business last year, citing lawsuits over how its workers should be classified.

In a post on Uber’s website, CEO and co-founder Travis Kalanick said the company is pleased with the settlement.

“Six years ago when Uber first started in San Francisco, it was easy to communicate with the handful of drivers using the app,” Kalanick wrote. “Today, while the number of drivers using our app has grown dramatically”—over 450,000 in the U.S.—“their reasons for doing so haven’t changed. In the U.S., almost 90 percent say they choose Uber because they want to be their own boss. Drivers value their independence—the freedom to push a button rather than punch a clock, to use Uber and Lyft simultaneously, to drive most of the week or for just a few hours.”

However, Kalanick admitted “we haven’t always done a good job working with drivers” and the company has reached a size that it needs to change some of its policies.

The judge must still approve the settlement. Among the changes agreed to by both sides:

—Uber published a “deactivation policy” for U.S. drivers and said it intends to roll out similar measures for its drivers in other countries. The policy stipulates that Uber can’t bar drivers from providing services through its app without “sufficient cause,” and they can’t be deactivated “at will.” There must be at least two warnings (except in cases involving safety, fraud, discrimination, or illegal conduct), and the reasons for deactivation must be provided in writing, according to the settlement.

—Drivers will be able to appeal their deactivation to a panel that includes other drivers. If the driver isn’t satisfied with the appeal result, the claim can be brought to a neutral arbitrator, and Uber would have to cover arbitration fees.

—Uber will fund the creation of “driver associations” in California and Massachusetts that will be led by drivers elected by their peers. The company has agreed to meet with association leaders each quarter to address drivers’ concerns. The association will play a role similar to a union, even though it’s not an officially recognized one, Liss-Riordan said.

—Uber will more clearly communicate to riders and drivers that tips are not included in fares collected by its app, and drivers will be allowed to post small signs in their cars indicating that tips are appreciated, but not required.

Read the full text of the proposed settlement below.

Uber Settlement of Class-action Driver Lawsuit in CA, MA

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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