Uber has been ordered to pay $100 million to drivers seeking to be classified as employees, finally settling lawsuits threatening the company’s on-demand business model, which has historically depended on independent contractors.
Just yesterday the popular ride-hailing company announced it will be paying out an initial amount of $84 million for suits in California and Massachusetts to more than 385,000 of its drivers (Uber is valued at $62.5 billion). The company explained that it would compensate the drivers an additional $16 million if the company’s valuation reaches 1.5 times its current value after going public.
Finally, drivers cheered the fact that Uber has agreed to policy changes that reduce its control over drivers, allowing them to operate more like “real” independent contractors.
The settlement finalizes employment attorneys believe was the biggest threat to the rapidly-growing start-up. Uber has pegged its high valuation on a structure that uses independent contractors, which allows the company to avoid responsibility for driver expenses (like gas and mileage), or even provide benefits like health insurance, Social Security, overtime or sick days. Classifying its drivers as employees would have but into Uber’s margins significantly, raised fares for riders — and potentially slowed its global expansion.
Attorney Shannon Liss-Riordan, who is representing the drivers, brought the lawsuit against Uber in California back in 2013; drivers in the Massachusetts case filed their suit in 2014.
Yet changes do not end with the monetary settlement; Uber will also institute changes in the way it disciplines drivers. The company can no longer terminate drivers’ accounts at will. Their workers will now get a warn and have the chance to address those issues before their service is deactivated. The company will also stop cutting off drivers who frequently turn down rides. Uber will form appeal panels and support drivers in forming an association that allows them to contest terminations.
If drivers are dissatisfied with the result of their appeals, they can bring their claim to an arbitrator at Uber’s expense. The company is also developing an internal escalation process to negotiate disputes over driver pay.
Finally, Uber will specify to riders that tips are not automatically included in Uber’s fares. Drivers will be allowed to solicit tips from passengers — a policy that Lyft (Uber’s primary competitor) has offered since the beginning. Yet unlike Lyft, Uber will not be adding a tipping feature to its app.
The settlement is still pending, and needs to be approved by Judge Edward Chen of the District Court of Northern California. According to Uber representative, this will likely be a months-long process.
If approved, the payment will be divided among drivers in California and Massachusetts who provided at least one trip up until the date of the preliminary settlement approval. Distribution will be calculated according to miles driven providing passenger rides. Drivers who’ve logged over 25,000 miles could receive up to $8,000 or more, according to Liss-Riordan.
“If we chose not to settle this case, we faced risks,” Liss-Riordan said in a prepared statement. “We faced the risk that a jury in San Francisco (where Uber is everywhere and quite popular) may not side with the drivers over Uber.”
Liss-Riordan admitted that good many drivers will be disappointed that case did not go to trial. But she explained that the case is only being settled, not decided. In other words, courts have yet to rule whether Uber drivers are employees or independent contractors, and there is likely more litigation to come over the same issue. “The debate will not end here,” she said.
Uber’s website posted a statement from CEO Travis Kalanick where he claimed that most Uber drivers prefer to be listed as independent contractors, which is “why we are so pleased that this settlement recognizes that drivers should remain as independent contractors, not employees,” he said.
Again, just because Uber has settled does not mean the case is shut and closed. Lyft attempted to settle a similar class-action lawsuit with its drivers earlier this year, but the judge rejected that settlement package, claiming that the monetary compensation was inadequate. Both sides have headed back to the drawing board.
When taken to trial, employment lawsuits of this kind tend to be all or nothing. By settling, the drivers’ attorney is ensuring that her clients will at least get some compensation.
For Uber, a settlement means the company avoids the risk of losing the lawsuit and being forced to recognize its thousands of drivers as employees – an outcome that would put it on the hook for paying back wages and benefits to employees
“As we’ve grown we’ve gotten a lot right — but certainly not everything,” Kalanick said. “But there’s more to do, which is why I’m excited about some other improvements we have planned for the not-too-distant future