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Uber agrees to pay $100 million to avoid paying for driver benefits

The company has agreed to settle a pair of lawsuits that could have significantly upended its business model.

Spencer Platt / Getty Images

Uber has agreed to settle a pair of lawsuits that could have significantly upended the company’s existing business model. As part of the settlement, the company has agreed to pay $100 million — $84 million of which is guaranteed while the remaining $16 million will be paid out if the ride-hail company goes public — to a group of drivers in California and Massachusetts to continue to avoid having to front the costs of employer-sponsored benefits.

The question at the center of the case was whether Uber misclassified its drivers as independent contractors — a classification often determined by how much control a company exerts over the contractor.

If the terms of the agreement are accepted, Uber will still treat its drivers as independent contractors but has agreed to implement a number of substantial changes that benefit them. Most notably, Uber will have to facilitate the formation of and recognize two driver-based groups: An appeals panel made up of highly rated drivers and a driver association which Uber has to engage with in “good-faith discussions.”

The driver association will be led by a team of leaders elected by other drivers in the group, and while it’s not an officially recognized union, Uber has agreed to meet with the association’s elected leaders on a quarterly basis to discuss any grievances or concerns the rest of the group has.

“We believe these to be very significant changes that will improve work conditions for Uber drivers,” Shannon Liss-Riordan, the attorney representing the plaintiffs, said in a statement. “While this case has been pending, we have heard many complaints from drivers about being deactivated without good cause and frustrations about pay issues that they have not been able to get addressed by Uber management.”

Additionally, Uber can neither deactivate drivers at will nor deactivate drivers for not accepting a minimum percentage of ride requests they receive. Uber has also agreed to notify riders that the tip is not included in the fares and, for the first time, has published a deactivation policy that clearly states the reasons drivers can face deactivation.

“Drivers will be able to place signs in their cars informing riders that tips are not included, and while they are not required, they would be appreciated,” Liss-Riordan wrote. “By Uber making clear to riders that tips are not included, we believe that many riders will now tip their Uber drivers because riders have been under the impression from Uber’s prior communications that tips are included in the fares.”

While Uber CEO Travis Kalanick celebrated the ability to continue to treat the company’s drivers as freelancers and not employees in a blog post, the changes Uber has agreed to implement are benefits and policies often reserved for employees. Specifically, independent contractors are typically not eligible to be represented by a union.

Drivers in some parts of the country have already attempted to circumvent the limitations on forming a union. In Seattle, the city approved a proposal to allow Uber and Lyft drivers to unionize; at a protest earlier this year, New York drivers began gathering signatures to present to City Council to show support for a unionization effort.

“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,” Kalanick wrote. “That’s why we are so pleased that this settlement recognizes that drivers should remain as independent contractors, not employees.”

Though a significant move toward solving the issues drivers often complain about — specifically the misconception among riders that tips were included in the fare, which Uber itself peddled for several years — this settlement and the terms of the agreement will only affect drivers in California and Massachusetts, for now.

According to Uber, the company plans to implement an appeals panel, driver association and the tip policy nationwide if it’s successful in these two states. The deactivation policy goes national to all drivers today.

Even in those states, the changes Uber has made will not alleviate any of the costs of operations like gas, car maintenance and insurance that drivers have to front in order to work on the platform. But, under the agreement, drivers who have driven more than 25,000 miles in those areas are qualified to receive an average of about $8,000 as part of the settlement.

Lyft reached a similar settlement with plaintiffs in an employee misclassification suit but was ultimately rejected by a federal judge.

This article originally appeared on Recode.net.

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