Worker classification can be a major headache for companies of all shapes and sizes, but for employers embracing the shared-economy business model, it can be one of migraine proportions.
No one knows this better than Uber, which has been facing an onslaught of lawsuits from drivers seeking employee status. Were the drivers to win that battle in the courts, the implications for the firm’s business would be huge.
Well, as you may have heard, Uber avoided that potential outcome in California and Massachusetts when it settled two class-action lawsuits: O’Connor vs. Uber and Yucesoy vs. Uber, respectively.
In the settlement, the parties agreed that …
- Drivers will remain independent contractors, not employees;
- Uber will pay $84 million to the plaintiffs (and there would be a second payment of $16 million if Uber goes public and its valuation increases one-and-a-half times from its December 2015 financing valuation within the first year of an IPO);
- The firm will provide drivers with more information about their individual rating and how it compares with their peers. (It would also introduce a policy explaining the circumstances under which it deactivates drivers in these states from using the app); and
- The parties would work together to create a driver’s association in both states, with Uber helping to fund these two associations.
In a post about the settlements, Uber CEO Travis Kalanick wrote that Uber is “pleased that this settlement recognizes that drivers should remain as independent contractors, not employees,” noting that drivers value their independence—the freedom to push a button rather than punch a clock.
Kalanick admitted that, as Uber has grown, “… we haven’t always done a good job working with drivers.”
As a story in the Los Angeles Times points out, the settlement still needs to be approved by a judge in the District Court of Northern California, which could take months.
“If approved,” the paper reports, “the payment will be distributed among drivers in California and Massachusetts who performed at least one trip up until the date of the preliminary settlement approval. Distribution will be based on miles driven while a passenger was in the car.”
The plantiffs’ attorney, Shannon Liss-Riordan, released a statement to various press outlets saying the settlement was the right move, considering the risk of having a jury rule against the plaintiffs.
Earlier today, I spoke to Thomas Lewis, a shareholder in the Princeton, N.J., office of Stevens & Lee, who told me it was probably a smart move for Uber, too.
“What’s interesting about the Uber case is that the class-action settlement came just short of effectively giving certain rights to these independent contractors that should belong to employees,” he said. “So this is telling me that Uber is clearly aware that there could be a push to classifying independent contractors as employees were it to go through the court system and there was an adjudication.”
And it’s no secret, of course, that, were Uber to come up on the losing end of a court battle, it would be costly, considering the company’s business model.
Of course, there’s no way to know if this will put an end to the worker-classification issue at Uber. Lewis noted if a new class action is filed, it would be need to be filed with a different set of facts or issues that were brought forth.
But at least for the time being, you would think Uber executives should be able to rest a little easier.