Uber has settled two major class action suits in which its drivers challenged their classification as independent contractors as an unfair denial of benefits associated with being employees. Under the agreement, which covers about 385,000 of its drivers in California and Massachusetts, the drivers will remain independent contractors.
In return, Uber will pay them $84 million, with an additional $16 million if the company goes public and its “valuation increases one and a half times from our December 2015 financing valuation within the first year of an IPO.” The company also made concessions that will allow drivers to get tips, to form an association (albeit not a union) to discuss grievances with the company and to appeal deactivations by Uber to a special panel and if necessary an arbitrator.
It also agreed to “provide drivers with more information about their individual rating and how it compares with their peers,” according to an announcement from the company. “Uber will also introduce a policy explaining the circumstances under which we deactivate drivers in these states from using the app.” Uber also will create a “driver’s association” which would meet quarterly to discuss driver concerns.
The settlement does not set any legal precedent and the company still faces other suits that remain unresolved.
The cases against Uber have been cast as major tests of the future of the “sharing economy.” A ruling against Uber in court, which is still possible in the other cases, would cost it millions annually and could set precedents for other businesses. Workers classified as employees would be covered by federal labor laws and other regulations which would have entitled the drivers to coverage under minimum wage laws, unemployment benefits, workers’ compensation, the right to form unions under the federal labor law and reimbursement of expenses.
Despite the obvious monetary implications, the settlement is ultimately in Uber’s favor, though the company still faces risks from other unsettled lawsuits.
If the agreement is approved by U.S. District Judge Edward Chen of the Northern District of California, the company will not have to appear at the jury trial that was scheduled for June in San Francisco, the Wall Street Journal reported.
In its statement, Uber co-founder and CEO Travis Kalanick said that “while the number of drivers using our app has grown dramatically, 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. That’s why we are so pleased that this settlement recognizes that drivers should remain as independent contractors, not employees.”
“We realize that some will be disappointed not to see this case go to trial,” Shannon Liss-Riordan, the attorney representing the drivers, said in a statement according to the Wall Street Journal. “We believe the settlement we have been able to negotiate … provides significant benefits—both monetary and non-monetary—that will improve the work lives of the drivers and justifies this compromise result.” She noted that the legal issues are not resolved because of other outstanding cases.
“If Uber is going to be genuine about this, I think it’s a very, very good move forward,” Joesph Sandoval DeWolf, president of the California App-based Drivers Association, told the New York Times.
The “sharing economy” refers to the sharing of goods and services on a peer-to-peer level in exchange for mutual benefit. One prominent example is Airbnb, the company that empowers homeowners to rent their homes directly to other people. Unlike a hotel, the user is renting directly from the owner with Airbnb as an intermediary. This isn’t a new model; the Internet has just helped it spread. But the terms of the business relationships between the intermediary companies and the providers are murky.
Uber is part of the sharing economy. Drivers sign up with the company to provide taxi-like services, using their own vehicles, to customers looking for rides.
The company sets a fare for each ride, which is based on both the type of car in use and what city it is in. It also decides if that price should increase during “surge” or heavily trafficked times.
While Uber portrayed the arrangement as idyllic, letting drivers fulfill a dream of being their own boss, drivers involved in the lawsuits believed otherwise, that Uber was very much in charge and to their disadvantage.
The company decides who can and cannot offer services. It distributes gratuity, and it can, in essence, “fire” drivers by deactivating their accounts. There is little recourse left to drivers, of which there are more than 450,000 each month in the U.S. alone, who don’t like the terms.
Apart from the settlement money that will go to the drivers in the two cases if the judge approves the deal, Uber will allow drivers in effect to solicit tips, allowing them to place signs in their cars stating that tips are not included in the fare.
According to a statement emailed to news organizations from Liss-Riordan, the drivers’ attorney, drivers will no longer be subject to deactivation for low acceptance rates. And drivers who have been terminated will be able to appeal to a panel “made up of highly rated drivers.”
If still dissatisfied, she said, they will be able to bring their claim to a “neutral arbitrator, at Uber’s expense, who will determine if there was sufficient cause for the deactivation.”
“Uber will facilitate and recognize the formation of a Driver Association,” she added, “which will have leaders elected by fellow Uber drivers, who will be able to bring drivers’ concerns to Uber management, who will engage in good faith discussions (on a quarterly basis) regarding how to address these concerns.”
Uber, in its statement, acknowledged that “we haven’t always done a good job working with drivers. For example, we don’t have a policy explaining when and how we bar drivers from using the app, or a process to appeal these decisions.”
“So today,” said Kalanick, “we’ve published a driver deactivation policy for the first time. It will apply across the United States, and our goal is to roll out similar policies globally over time.”
Resolution of the cases is considered crucial to Uber’s valuation which soared “on the premise that it operates a technology platform connecting drivers and passengers, rather than a taxi service that owns cars and employs drivers,” as the Wall Street Journal reported. It is now valued at $62.5 billion, reported the Los Angeles Times.
In the statement, Kalanick said Uber still retains the right to terminate drivers who “are violent, drink and drive, or refuse someone a ride because of the color of their skin or sexual orientation.”