Uber has survived a major threat to its business model, settling two legal suits brought by drivers who sought to be classified as employees instead of independent contractors.
The ride-hailing firm will pay up to $100 million to the 385,000 drivers, but their employment status will not change.
The class actions were brought in California and Massachusetts. Uber, which is valued at up to $70 billion, is on the hook for a $84 million initial payment, and another $16 million if it goes public.
Under the terms of the settlement, Uber must give drivers more warning before they are removed from the service. The company is also required to establish an appeals process for divers who believe they have been unfairly terminated.
The settlement, which must be approved by a judge, allows for the creation of “driver associations” that will represent workers in talks with management.
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In addition, drivers will now be allowed to post signs in their cars explaining that while tips are not included or required, “they would be appreciated,” according to Shannon Liss-Riordan, an attorney who represented drivers in both lawsuits.
“We believe these to be very significant changes that will improve work conditions for Uber drivers,” Liss-Riordan said.
The settlement payout to drivers will be based on the number of miles they have driven for Uber. Those with more than 25,000 miles under their belt will receive roughly $8,000 each.
Yet Uber also walks away from the settlement with a major victory: Its drivers will remain classified as independent contractors, not employees. Independent contractors are cheaper to hire, and unlike employees, companies are not required to provide them with benefits like overtime and health insurance.
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Uber insists that many of its drivers want to be their own boss, and value their independence. The app gives them the freedom to work most of the week, or just a few hours.
“That’s why we are so pleased that this settlement recognizes that drivers should remain as independent contractors, not employees,” CEO Travis Kalanick said in a statement.
Liss-Riordan acknowledged that some drivers would be disappointed with the decision to settle, but she defended the new benefits that will be enjoyed by drivers and said that a trial would have been risky.
She also signaled that Uber could face future challenges over how it classifies drivers.
“No court has decided here whether Uber drivers are employees or independent contractors and that debate will not end here,” she said.
— Heather Kelly contributed reporting.