Uber has agreed to pay up to $100 million to settle a class-action lawsuit with drivers in California and Massachusetts, avoiding a trial which could have forced the company to treat them as employees.
The settlement resolves, at least for now, a major challenge to its business model by allowing the ride-hailing service to carry on classifying its drivers as independent contractors. It must be approved by a judge before it is finalized.
The lawsuit had claimed that Uber drivers are employees and thus entitled to reimbursement of expenses and other employment rights and benefits.
The case against Uber had been closely watched in Silicon Valley, as other companies in the on-demand tech economy share Uber's reliance on independent contractors. The class action had been scheduled for a trial in San Francisco federal court in June.
"We realize that some will be disappointed not to see this case go to trial," said Shannon Liss-Riordan, an attorney for drivers, but added the plaintiff drivers faced significant risks of losing if the case moved forward.
Their chances could have been damaged by a recent decision by a federal appeals court to review an order allowing Uber drivers to sue as a group.
Nothing about the settlement prevents a future court, or US labor authorities, from deeming Uber drivers as employees, Liss-Riordan said in a statement.
"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."
The six of the settlement should serve as a "stern warning to companies who play fast and loose with classifying their workforce as independent contractors," she said.
Uber agreed to some changes in its business practices, including the institution of a policy for deactivation of drivers, chief executive Travis Kalanick said in a blog post about the settlement. Some drivers had long complained that Uber arbitrarily terminated users from its platform.
Uber is "pleased" that the deal "recognizes that drivers should remain as independent contractors, not employees," Kalanick said in the post.
The company also agreed to help create a drivers' association in both states. Liss-Riordan said that while such groups are not officially a union, they can act like a union in bringing grievances to management's attention.
Out of the $100 million proposed payment, $84 million is guaranteed to drivers. Uber could also pay an additional $16 million, but only if the company's valuation grows by 150 percent above its December 2015 financing round within a year after any initial public offering. Uber was valued at $62.5 billion in that December funding round.
However before the settlement is made it will have to be approved by US District Judge Edward Chen in San Francisco. A $12.5 million settlement with San Francisco drivers for ride-hailing company Lyft, also reached by Liss-Riordan, was rejected by a federal judge for having "short-changed drivers." Both parties have to come up with a new deal by May.
Over 450,000 US drivers currently use Uber each month, Kalanick said in the blog post.
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