Uber reaches $100m settlement in fight with drivers, who will stay contractors

Uber has agreed to settle a class-action lawsuit with its California and Massachusetts drivers for up to $100m, avoiding a jury trial that could have reclassified contractors as employees and was expected to determine the fate of the so-called gig economy.

The proposed settlement – which must be approved by a judge – would allow the ride-hail app to continue classifying drivers as independent contractors though it will make some changes to their working conditions.

Under the terms of the settlement, Uber has agreed to stop deactivating drivers “at will” and will allow drivers to solicit tips by placing a sign in their cars. Uber will also facilitate the formation of a “drivers’ association” that “can play a role similar to a union”, according to a statement from the drivers’ attorney, Shannon Liss-Riordan.

Though the drivers’ associations and settlement money will only apply to drivers in California and Massachusetts, the new deactivation policy will be implemented nationwide, Uber CEO Travis Kalanick said in a blogpost announcing the agreement.

“As Uber has grown – over 450,000 drivers use the app each month here in the US –we haven’t always done a good job working with drivers,” Kalanick wrote. “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.”

Of the settlement money, $84m is guaranteed to drivers once the settlement is approved. An additional $16m will be paid out if Uber goes public and its value increases one and a half times from its December 2015 valuation of $62.5bn within a year of its IPO.

The settlement money will be apportioned to drivers based on the number of miles they have driven with an Uber passenger.

Though she acknowledged that “some will be disappointed not to see this case go to trial”, Liss-Riordan said that the size of the settlement will serve as a “stern warning to companies who play fast and loose with classifying their workforce as independent contractors”.

“Importantly, the case is being settled – not decided,” she added. “No court has decided here whether Uber drivers are employees or independent contractors and that debate will not end here.”

Approval of a proposed class-action settlement is not guaranteed. In January, Liss-Riordan reached a proposed $12.25m settlement on a similar class-action claim against rival ride-hail company Lyft. That settlement was rejected in April by a federal judge who said the agreement “shortchanged” drivers.

The proposed settlement is a victory for Uber’s business model, which has enabled the company to, in just a few years, soar to a valuation surpassing Ford and General Motors. By classifying its army of drivers as independent contractors, Uber has avoided incurring costs such as the minimum wage, overtime, healthcare benefits and reimbursing drivers for their mileage. Independent contractors are also barred from forming unions to bargain collectively.

The independent contractor model popularized by Uber has been adopted widely by tech startups providing on-demand services, though the threat of class-action litigation appears to have prompted some companies to change course.

“As a result of this litigation, many companies have chosen to go the other way and not fight this battle, and instead to classify their workers as employees with all the protections that accompany that classification,” Liss-Riordan said.

Uber still faces class-action suits over employee classification in several other states.