Uber settles driver suits in test for the 'sharing economy'

Uber appears to have reached a settlement with thousands of drivers who sought 'employee' status, but the solution may just be a temporary fix. 

Uber could pay up to $100 million, the ride-sharing leader announced on Thursday night, to settle two class action lawsuits with drivers challenging their classification as "independent contractors" rather than employees.  

About 385,000 drivers in California and Massachusetts will benefit from this windfall, though they will not achieve their original goal of gaining employee status. Uber will pay an initial $84 million, followed by an additional $16 million if the company goes public and sees its value increase by 50 percent within a year. 

Today's so-called sharing economy, in which apps have made it easier for to find peer-to-peer services from Airbnb to doggy daycare, has created a host of issues for labor. Uber, for example, classifies its employees as independent contractors so that it doesn't have to pay for their car insurance or Social Security, as well as other benefits such as workers' compensation, sick days, or the right to form unions. 

What Uber drivers do get is the flexibility to choose hours and determine when, where, and how much they want to work. Flexibility is one of the things Uber drivers most prize about their jobs, chief executive office Travis Kalanick wrote in a Thursday statement. 

Mr. Kalanick cites Uber drivers who told the court that they preferred the flexibility of the independent contractor designation to the potential security of being labeled an employee.

"I wouldn't even want to be an Uber employee," one unnamed driver testified. "I would quit if they tried to make me an employee, because I value my freedom as an independent contractor too much."

Many others, however, have shown that they are more than interested in obtaining employee status.

As part of the settlement, Uber will change policies that caused complaint among its independent contractors, but many say that it is still not enough. 

Whereas Uber was previously able to deactivate driver accounts without warning, a new policy states it will issue warnings and justifications prior to deactivating driver accounts. The company published its deactivation policy for the first time on Thursday. 

With a nod toward the flexibility Kalanick touts, Uber will also no longer penalize drivers who frequently refuse rides. Kalanick acknowledged that although frequently declining rides "undermines the reliability of the service for riders ... we understand that drivers need breaks, and sometimes things come up – maybe a kid has gotten sick at school."

Drivers will also be permitted to post small signs explaining that tips are not required, but appreciated. Uber says that it will establish and support two drivers associations in the relevant states, California and Massachusetts, and meet with them quarterly.

Kalanick wrote on Thursday that Uber is taking these steps with an eye toward the future.

"Uber is a new way of working: it's about people having the freedom to start and stop work when they want, at the push of a button. As we've grown we’ve gotten a lot right – but certainly not everything," he concludes. "But there's more to do, which is why I'm excited about some other improvements we have planned for the not too distant future. Stay tuned."

Unless Uber creates some sort of employee-style benefits program, however, more legal challenges may lie ahead.

This lawsuit merely brought the issues of independent contractors to light, but it did not put them to rest. In fact, the independent contractor question is now, perhaps, more in the public eye than ever before. 

No court has ruled on whether or not Uber drivers are independent contractors or not, which leaves the matter open to future suits, and perhaps not just for Uber.

As The New York Times noted last September, the 21st century functions on 19th-century labor laws. But legal frameworks suitable for factory workers are not necessarily applicable to today's remote workers or workers with flexible schedules.

"The debate will not end here," plaintiff attorney Shannon Liss-Riordan said in a press release. The case "stands as a stern warning to companies who play fast and loose with classifying their workforce as independent contractors," she wrote, stating that "many companies have chosen to go the other way and not fight this battle."