Last night San Francisco-based Uber announced it has settled a pair of major class-action lawsuits in California and Massachusetts that sought employee status and the rights that come with it for drivers. The proposed settlement will allow the company to keep its drivers independent contractors instead of employees. The high-profile cases have been cited by many experts as pivotal in the ongoing saga of worker misclassification in the on-demand economy.
If it is approved by the court it will cost Uber up to $100 million and also force them to make some significant policy concessions. But it will allow the on-demand ride-hailing company to move forward with its aggressive expansion plan by keeping its drivers independent contractors, for now.
Under the terms of the deal, Uber will pay $84 million to the plaintiffs in California and Massachusetts and another $16 million if the company goes public and meets certain goals. In a major concession against a traditional Uber policy, drivers will now be allowed to put signs in their cars saying “tips are not included” in the price of a ride and would be appreciated. Ubers biggest ride sharing competitor, Lyft, has functionality in its app that allows for riders to add a tip for the driver, something that Uber does not.
Uber also agreed to improve its systems for communicating with drivers about their ratings. Up until now, Uber could deactivate a driver without explanation. Under the proposed settlement Uber must now give cause for deactivation and allow arbitration in disputes. Plus, certain standards such as drivers’ accepting too few passengers are no longer considered grounds for being cut off by the company.
The company will also help start drivers’ associations in both California and Massachusetts.
In a statement on the deal, lead plaintiff’s attorney, Shannon Liss-Riordan, said: “We believe these to be very significant changes that will improve work conditions for Uber drivers.”
In a blog post titled “Growing and Growing Up”, Uber CEO, Travis Kalanick, said:
Today we announced a settlement in two important class-action lawsuits: O’Connor (California) and Yucesoy (Massachusetts). The key issue at stake in both cases is whether drivers using the Uber app should be classified as independent contractors or employees. 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. That said, as Uber has grown—over 450,000 drivers use the app each month here in the U.S.—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. At our size that’s not good enough. It’s time to change.
Forcing Uber to classify its drivers as employees would have increased its operating expenses significantly. It would also go against its driver-centric business model and identity which stress freedom and autonomy.
Despite this news, it is not entirely clear sailing for Uber. First, and foremost, U.S. District Court Judge Edward Chen must still sign off on the deal. And although this deal would settle the two largest lawsuits Uber is currently facing it still faces similar suits in several other states including Arizona and Florida. It is certain that we haven’t heard the last of this issue. The whole on-demand economy faces risks that legislators and labor regulators will push for tighter regulations and standards for independent contractor status.
As this Uber class-action settlement demonstrates, there are risks in engaging independent contractors. The good news is these risks can be mitigated by working with an independent contractor compliance and engagement expert to make sure it is being done correctly. At TalentWave our compliance experts are actively monitoring these developments as they will influence the broader regulatory and civil litigation environments for our enterprise clients who engage flexible workers. In the short-term it is likely that 1099 economy companies like Uber will have to carefully evaluate their business models, and how they engage their services workers. Longer-term we can expect to see more regulatory and legislative activity that will attempt to better define and govern these flexible workers with the goal of collecting proper employment taxes and providing worker protections similar to what traditional employees receive.