For years, a question has shadowed Uber’s business model: Are its drivers employees or independent contractors? Uber built its high valuation on a system that uses independent contractors, enabling the company to avoid covering driver expenses such as gas and mileage, or providing benefits such as health insurance, Social Security, overtime or sick days.
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Uber is worth .5 billion in part because it refuses to treat its drivers as employees.
Also, as contractors, drivers do not have the same collective bargaining rights as employees under U.S. law. This effectively frees the ride-hailing company from the trouble of going through a complicated jury trial.
“The case is being settled – not decided”, said Boston-based labor lawyer Shannon Liss-Riordan, who is representing the drivers, in a statement. The move ends these court cases, which could have drastically changed the company’s business model.
But he acknowledged: “We haven’t always done a good job working with drivers”.
Some had complained about this being done arbitrarily.
“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”, said Uber’s chief executive, Travis Kalanick, in a blog post. That payment will go up another $16 million if Uber goes public and its valuation increases to one and a half times that of its last financing round.
“Under this agreement, Uber has agreed to pay up to $100 million to resolve these claims and will implement a number of significant policy changes”.
There are already similar groups that drivers have formed across the US without Uber’s involvement, like the App-Based Driver’s Association in Seattle, which is affiliated with a local union organization. Uber also agreed to help start a drivers’ association in both states, Reuters said.
According to Liss-Riordan, drivers who have the most miles logged are likely to receive some $8,000 or more under the settlement. Drivers may now post signs in their cars that read, “Tips are not required, but are appreciated”.
Chen had dealt the company a blow a year ago when he granted class-action status to the California drivers, rejecting Uber’s argument that most of its drivers preferred their contractual status and therefore Uber drivers should not be considered a class.
The settlement may make it easier for drivers to earn tips, which was a main issue in the original lawsuit.
Uber will still be able to set fares and subtract commissions of approximately 20 percent, and drivers will remain responsible for supplying the vehicle and paying all expenses, including insurance, the Los Angeles Times (sub. req.) reports. Somewhere upwards of 160,000 current and former drivers in California were eligible to join the suit, according a judge’s ruling in December, and it had the potential to cost the company upwards of $209 million.
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The case against Uber had been closely watched in Silicon Valley, as other companies in the on-demand tech economy share Uber’s reliance on independent contractors.
