Uber for some time has been locked in battle in multiple states and on multiple fronts over the classification of its drivers. Should they be full-on employees, with benefits--or independent contractors, free to make their own hours, but sans stability or the whole host of perks that comes with being a full-time employee?

We've seen similar battles take down other startups in the on-demand ecosystem, much of which is built on inexpensive contract labor. Remember Homejoy? It shuttered after an employee-classification lawsuit in California. (Homejoy claimed that making all those independent contractors real employees was simply too costly.)

Late Thursday evening, Uber reached a settlement in two of the lawsuits over how to categorize its drivers. The class-action lawsuits were those from California and Massachusetts, and ended with a settlement filed in the U.S. District Court in the Northern District of California. In it, Uber is allowed to continue to classify its drivers as independent contractors--and the company agreed to pay as much as $100 million to the roughly 385,000 drivers represented in the cases. (That's about $250 per driver--not a huge win on anyone's part.)

Uber was valued at $62.5 billion during its last funding round late last year. That means it's the most valuable private tech company in the world.

Included in the settlement were a few necessary changes Uber agreed to make in its business practices. They include being more transparent about how and why drivers are barred from using the Uber platform.

In a blog post Thursday, Uber's co-founder and chief executive, Travis Kalanick, wrote:

That said, as Uber has grown--over 450,000 drivers use the app each month here in the U.S.--we haven't always done a good job working with drivers. 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.

Uber also agreed to create driver associations in both Massachusetts and California. Also, in the blog post, Kalanick noted that there's one area in which riders may notice a quality difference: Uber has agreed not to cut off drivers who decline trips. 

As part of this settlement, Uber has agreed not to deactivate drivers who regularly decline trips when they are logged into the app. If too many drivers decline the rides we send their way, it undermines the reliability of the service for riders. But we understand that drivers need breaks, and sometimes things come up--maybe a kid has gotten sick at school. When drivers aren't available, we'd just ask they turn off the app. And where drivers do have low acceptance rates--perhaps because they are multitasking at home--we will alert them to the issue. If things don't pick up, we may log them out of the app for a limited period of time.

And here's where Uber's decisions get really interesting. It is certainly making a small concession to drivers by saying Uber will be more flexible about how many cancellations a driver can have in a period of time.

But saying that drivers can be temporarily or permanently taken off the Uber platform for having high cancelation rates suggests control -- i.e., the power a company may have over employees, not independent contractors, who by nature value freedom.  

"Ultimately, this is a deterrent to drivers actually refusing to accept trips," Rachel Bien, an employment lawyer at Outten & Golden who has litigated similar cases, told the New York Times. "If it's the kind of business that needs a driver to be at a certain place at a certain time regularly, it's not a business that's suitable for independent contractors, who should have the freedom to choose which jobs they want to do and when they want to do them."

The attorney representing the drivers in the lawsuit, Shannon Liss-Riordan, noted in a statement that the case is "settled--not decided." The significant payment of money by Uber should "stand as a stern warning to companies who play fast and loose with classifying their work force as independent contractors," she said. The settlement does nothing to prevent a court from, in the future, deeming Uber drivers as employees, Liss-Riordan said.

The agreement is still subject to final approval by Judge Edward M. Chen. The next step, if approved, is for Uber to pay $84 million to the plaintiffs in the case. (Uber has also agreed to pay an additional $16 million should the company go public and have its valuation increase by one-and-a-half times.)

Uber still is facing lawsuits over this same issue in Arizona, Florida, and Pennsylvania. 

Published on: Apr 22, 2016