Uber settlement keeps drivers as contractors in two states

It will cost Uber up to $100 million and took some significant policy concessions, but the ride-hailing company is forging forward with its thriving business model by keeping its drivers independent contractors, for now.

Uber settled major class-action lawsuits in California and Massachusetts that sought employee status and the rights that come with it for drivers, both sides announced Thursday night.

Under the deal, Uber will pay $84 million to the plaintiffs in California and Massachusetts and another $16 million if the company goes public and meets certain goals.

It still faces similar suits in several other states including Florida and Arizona.

In a concession touted by the plaintiffs, Uber will allow drivers to put signs in their cars saying “tips are not included” in the price of a ride and would be appreciated. Lyft, a rival ride-hailing service, allows for riders to add a tip for the driver on the app; Uber does not.

San Francisco-based Uber also agreed to improve its systems for communicating with drivers about their ratings and why they are terminated, to allow arbitration in disputes with drivers, and to help start drivers’ associations in both states.

In the past, Uber could deactivate drivers without explanation. Now the company must give cause for deactivation, and certain standards such as drivers’ accepting too few passengers are no longer considered grounds for being cut off by the company.

“We believe these to be very significant changes that will improve work conditions for Uber drivers,” plaintiffs’ attorney Shannon Liss-Riordan said in a statement on the deal.

Uber CEO Travis Kalanick said in a blog post announcing the deal that “we haven’t always done a good job working with drivers,” especially on the issues of deactivation and appeal.

He said with more than 450,000 drivers now working for the company, “it’s time to change.”

The deal settles the two largest lawsuits Uber faced, counted by the number of drivers involved.

Classifying its workers as employees could have increased Uber’s operating expenses significantly and would go against its business model and identity. Uber’s selling points for drivers are based on ideas of freedom and autonomy.

“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 said in his statement.

Federal law does not extend collective bargaining rights to independent contractors such as architects, masseuses or workers dispatched through mobile applications such as Uber and Lyft.

U.S. District Court Judge Edward Chen must still sign off on the deal.

Chen dealt the company a blow last year when he granted class-action status to the California drivers, rejecting Uber’s argument that most of its drivers preferred their contractual status and therefore Uber drivers should not be considered a class.

However, he rejected that drivers should be able to sue the company for expenses in addition to tips.