The Independent Contractors Debate
Over the past six years, Uber has expanded from its base in San Francisco to over 300 cities across the world. With more than 450,000 drivers using the company's app each month in the U.S. alone, a determination that its drivers were misclassified as independent contractors rather than employees could be extremely costly for the ride-sharing company, currently valued at $62.5 billion. And for that reason, Uber recently announced that it agreed to pay drivers in California and Massachusetts $100 million in an effort to ensure that the drivers are considered independent contractors, not employees.
The original litigation filed against both Uber and competitor Lyft challenged the status of its drivers as independent contractors. A class action lawsuit filed in California covered about 240,000 current and former Uber drivers who wanted additional compensation, including being reimbursed for expenses and tips. These freelancing drivers feel they are entitled to the protection of federal and state employment and labor laws. In response to these claims, Uber argues that it simply connects independent drivers with passengers and has no other form of control over drivers who use its service. A companion case was being litigated in Massachusetts alleging similar facts. Trial was slated to take place on June 20, 2016, and a loss could have cost Uber hundreds of millions of dollars.
The Proposed Settlement
On April 21, 2016, Uber announced that it had reached a preliminary agreement with the plaintiffs, filing a 153-page proposed settlement agreement outlining the terms of the deal. In a recent press release, Uber's Founder and CEO, Travis Kalanick detailed the terms of the settlement, which include:
- The drivers will remain independent contractors;
- Uber will pay $84 million to the plaintiffs in the California and Massachusetts cases and that a second payment of $16 million will be paid if Uber goes public and its valuation increases one and a half times from its last valuation in December 2015;
- Uber will provide drivers with more information about their ratings and how they compare with the ratings of other drivers;
- Uber will implement a policy informing drivers of how and when their accounts may be temporarily and/or permanently deactivated; and
- Uber will fund drivers' associations in California and Massachusetts and will meet with them quarterly to discuss driver concerns.
First, the federal court must approve the settlement and the court is currently reviewing the agreement to ensure fairness to all involved. Therefore, there is no guarantee that the court will approve the settlement agreement. Just several weeks ago, a California judge rejected a proposed settlement of similar litigation between Uber's competitor, Lyft, and its drivers in part because it “short-changed” those drivers. Under that settlement, Lyft drivers would have received an average of $56. Second, while Uber attempts to settle lawsuits with its former and existing drivers in California and Massachusetts, lawsuits in other states remain outstanding and new ones could be on the way.
The experienced California employment lawyers at Kingsley & Kingsley can quickly answer your questions about the classification of employees vs. independent contractors, or any of California's employment laws. To discuss these laws, or a potential claim on your behalf, feel free to call us toll-free at (888) 500-8469 or click here to contact us via email.