Uber Technologies Inc., which describes itself as an App that connects riders with drivers, recently announced a settlement in class actions in California and Massachusetts. According to the terms of the settlement, Uber will pay up to $100 million dollars to the class members. Uber drivers will also be permitted to solicit tips from riders.
That’s a substantial payment, but with a valuation of $62.5 billion, Uber can likely afford it. And in Uber’s estimation, the payout is worth it, to avoid a court ruling that that its drivers are employees. Had the case proceeded to trial and had Uber lost on that point, its business model would have been upended. 100 million is apparently a small price to pay to avoid that scenario.
Uber’s pitch to drivers is “Drive when you want, earn what you need.” The point being that a key perk Uber offers is flexibility. And in Uber’s mind, that means its drivers are contractors, not employees. By classifying drivers as contractors, Uber doesn’t need to worry about things like workers compensation, overtime, unemployment, and the whole litany of legally mandated benefits. And that means a lot of dollars to the bottom line.
In the class action suit, the drivers claimed they were misclassified as contractors and were actually employees. As such, they claimed they should have been reimbursed for expenses and tips. Had they prevailed, Uber may have been on the hook not just for those sums, but also statutory penalties.
As part of the settlement, Uber will not be allowed to fire drivers without a reason, and Uber will recognize a drivers’ association. That association will meet quarterly with Uber management to discuss working conditions. One part of the settlement that Uber customers will likely notice immediately is the provision that allows drivers to solicit tips. In the suit, the drives claimed Uber led customers to believe tips were included in the fare.
As so often happens in a settlement, both sides are claiming victory. In a blog post, Uber CEO Travis Kalanick, claimed the settlement “recognizes that drivers should remain as independent contractors, not employees.” But Shannon Liss-Riordan, the drivers’ attorney (who gets 25% of the settlement --nice) emphasized that “[n]o court has decided here whether Uber drivers are employees or independent contractors and that debate will not end here.”
I suppose for the time being, they are both right. And it’s hard to argue with Uber’s decision to avoid a potentially catastrophic legal ruling. But when all is said and done, the fate of the gig economy may ultimately rest in the hands of judges. If they ever get a chance to rule.
