About a year ago, a major class action lawsuit was announced by Uber drivers against the company. The suit was centered around whether or not to classify Uber drivers as full-time workers (entitled to benefits and other basics) or freelancers. If Uber drivers are classified as being "employed" by Uber, the company's operating costs would go dramatically up overnight.

The implications for other on-demand companies would be dramatic if Uber lost. But Uber settled the case recently for $100 million, and Uber drivers will not be classified as employees of Uber, nor will they be allowed to unionize.

Prior to the decision, the internet was abuzz about whether this would be the end of the on-demand economy. Companies such as Sprig and Lyft announced innovative new policies around classifying freelance laborers as employees, and in some cases even granting them stock options.

The reality is, the tables have completely turned thanks to the settlement, and here are the real winners and losers:

Winners:

Uber. Uber was the first company to really push the boundaries of tech innovation and regulation at the same time. Airbnb followed suit shortly thereafter, but Uber deserves a lot of credit and criticism for being brazen and dismissive of regulation. They are being handsomely rewarded as a result.

If you think Uber is sweating over a $100 million settlement after having raised $9 billion, you are dead wrong. Uber's business model is now validated and completely bulletproof. Ladies and gentlemen--we have precedent.

The On-Demand Economy. Dozens of on-demand companies were sweating over the outcome of this lawsuit. Everyone can now breathe a huge sigh of relief. Uber settled its case and gave up some extremely minor concessions, relatively speaking. This is in contrast to a year ago, when many on-demand startups were stressed out about potential regulatory issues in the wake of the demise of Homejoy.

This is also great for consumers of on-demand services, who don't have to worry about the prospect of their favorite companies going under because of regulatory issues (although unit economics are another issue altogether).

Venture Capitalists Who Invested in On-Demand Companies. It feels like only bad news has been coming from the on-demand space lately, but all of a sudden we have the best news possible. VCs who put money into the space can breathe easy now that a huge portion of the business model risk of these companies has effectively been eliminated.

Between the Uber case and the LiveOps case, there will not likely be another major class action suit brought forward (that has merit) against on-demand companies.

Losers:

The Plaintiff's Attorneys Who Brought the Case to Court/the Drivers. Driver reaction to this case is already mixed. The initial $84 million payout across 385,000 drivers equals only about $218 per driver.... And that's not factoring in the (presumably) 20 percent cut that the attorneys take as part of trying this case. You can't help but feel counsel may have left money on the table in this case.

The Freelancers Union. The Freelancers Union has to view this as a major blow to their cause. Not only did counsel decide to settle, but Uber drivers will not get to unionize. This sets back the agenda the Freelancers Union has been pursuing  (and, by many accounts, they've been successful) significantly.

Years from now, people will look back on this case as groundbreaking for the U.S. economy. The way people work is completely changing. Millions of people are dropping out of the work force for freelance or on-demand opportunities. This case is pivotal both to businesses that want to keep operating costs low and freelancers in pursuit of "full-time" status. Uber, and big business, win this round.

 

Published on: Apr 25, 2016