In January we updated you on the numerous legal battles Uber was fighting across the country related to its classification of its drivers as independent contractors rather than employees. Uber, the on-demand car service, recently put one of those battles behind it by settling a class action lawsuit covering 385,000 drivers in California and Massachusetts for $100 million.
Under the terms of the settlement Uber will continue to be able to classify its drivers as contractors. The company also made concessions allowing drivers to receive tips, and to form an association - although not a union - to discuss grievances with the company.
According to an announcement by the company following the settlement, Uber agreed to “provide drivers with more information about their individual rating and how it compares with their peers.” It also agreed to “introduce a policy explaining the circumstances under which we deactivate drivers in these states from using the app.”
Employee vs. independent contractor classification is becoming an increasingly important issue for companies, like Uber, in the “on demand,” “gig,” or “sharing” economy. The consequences, should workers currently classified as independent contractors be deemed employees, are severe. Uber would be required to pay drivers in accordance with state wage and hour laws, reimburse them for expenses necessarily incurred while working (e.g., fuel and mileage), reimburse their tips, withhold and pay taxes, and compensate non-exempt employees for overtime hours. Employees, as opposed to independent contractors, are also eligible for unemployment compensation and workers’ compensation benefits.
While Uber escaped this battle, it remains to be seen whether it will win the war. While the settlement allows Uber to continue classifying its drivers as independent contractors, it sets no precedent. The company faces a number of other lawsuits in other states that, if not settled, could result in a costly verdict. Uber’s business model, and its lofty valuation, is built on the premise that its drivers are independent contractors. Jury verdicts to the contrary would test that model and valuation, and challenge many of the assumptions being made by other companies competing in the “on demand” economy.