Recently, Uber announced that it agreed to pay drivers in California and Massachusetts $100 million in an effort to ensure that the drivers are considered independent contractors, not employees. In just six years, Uber has expanded from its base in San Francisco to over 300 cities across the world. With more than 450,000 drivers using the company’s app each month in the U.S. alone, a determination that its drivers were misclassified as independent contractors rather than employees could be extremely costly for the ride-sharing company, currently valued at $62.5 billion.
The debate concerning the correct classification for these freelancing drivers has grown in recent months, with drivers in states including Georgia, Pennsylvania, Texas, Florida, and Oregon claiming that they are employees of Uber entitled to the protection of federal and state employment and labor laws. In response to these claims, Uber argues that it simply connects independent drivers with passengers and has no other form of control over drivers who use its service.
In a recent press release, Uber’s Founder and CEO, Travis Kalanick detailed the terms of the settlement, which include: (1) the drivers will remain independent contractors; (2) Uber will pay $84 million to the plaintiffs in the California and Massachusetts cases and that a second payment of $16 million will be paid if Uber goes public and its valuation increases one and a half times from its last valuation in December 2015; (3) Uber will provide drivers with more information about their ratings and how they compare with the ratings of other drivers; (4) Uber will implement a policy informing drivers of how and when their accounts may be temporarily and/or permanently deactivated; and (5) Uber will fund drivers’ associations in California and Massachusetts and will meet with them quarterly to discuss driver concerns.
In addition to identifying the terms of the agreement, which must still be approved by the court, Kalanick stressed the drivers’ desires to remain independent contractors. Kalanick provided testimonials of drivers stating they would stop driving if they were considered employees because they enjoyed the freedom of having full control over when they choose to drive.
Uber’s settlement will, if approved by the court, resolve only two of many cases challenging Uber’s business model, and it will certainly not be the last such challenge faced by Uber or other pioneers of the “sharing economy.” The settlement, a strategic retreat deferring the ultimate legal question of whether Uber drivers and similar workers are employees, confirms the importance of the independent contractor model to Uber’s business strategy, as Uber was willing to pay a substantial amount to settle the litigation under terms that will allow Uber to maintain its present business model. It remains to be seen whether these settlements will act as precedent resolving pending claims on similar terms and allowing Uber to continue relying on the independent contractor model.
We will continue to follow these cases and update you on the court’s final decision.