What Uber’s $100 Million Class-Action Settlement Actually Means

On April 21 of this year, Uber reached a settlement with the 385,000 drivers listed on the class-action suits filed against them. The suits, filed in California and Massachusetts, focused on whether Uber drivers are independent contractors, as previously listed, or if they should be classified as employees. The question of whether workers are contractors or employees centers largely on how much control the company exerts over them.[1] If the drivers were to be classified as employees, it would mean that Uber would have to pay approximately 30 percent higher labor costs, including reimbursement of business expenses, the employer share of Social Security and Medicare, unemployment insurance, workers compensation premiums, liability for the negligent acts of their drivers, and health care and other benefits.[2] And while Uber drivers argue that they’re entitled to the benefits of employees, and Uber spokesman was quick to point out that there are downsides to being classified as employees, saying “As employees, drivers would have set shifts, earn a fixed hourly wage and lose the ability to drive with other ride-sharing apps.”[3]

In the settlement, Uber agreed to pay $84 million to the 385,000 drivers, as well as an additional $16 million should the company go public. The money is to be distributed in part based on how many miles drivers travelled, which state they drove in, and how many drivers claim their share of the payout. The attorney for the plaintiffs, Shannon Liss-Riordan, expects the claim rate to be 50 percent, according to a court filing she wrote last week. In California, individual drivers will receive anywhere from $24 to $8,000. The settlement money will be far lower in Massachusetts, as class members in California have been allotted about 80 percent of the payout.[4] About a quarter of the settlement will go to the lawyers who argued on behalf of the Uber drivers.[5]

In return for the payout, the drivers in the class-action suit will not pursue their claim to be employees. This prevents the drivers from receiving worker protections. However, Uber did make several policy concessions, the most important of which being that drivers will have access to more information about the rating system used to evaluate their performance and that drivers can now go through a process to appeal deactivation based on low ratings. Ultimately, despite the potentially $100 million dollar price tag that Uber paid to settle, the company is the clear winner, because it still gets to call its drivers independent contractors.[6]

Despite Uber’s big win in this case, it appears that this issue is not settled just yet. The settlement in no way precludes drivers in states outside of Massachusetts and California from suing Uber for the same exact thing. In fact, less than two weeks after Uber settled the class-action lawsuits in California and Massachusetts, lawyers in Florida and Illinois filed similar class-action lawsuits on behalf of Uber drivers who say Uber violated the Fair Labor Standard Act. They seek to recover drivers’ unpaid overtime wages and work-related expenses.[7]

As companies that operate similarly to Uber continue to arise, the muddy distinction between independent contractors and employees becomes evermore important. One possible remedy, suggested by Seth Harris, a former U.S. deputy secretary of labor, and Princeton economist Alan Kreuger in a coauthored policy paper entitled “A Proposal for Modernizing Labor Laws for 21st Century Work: The ‘Independent Worker,’” is to create a new category of workers, called “independent workers.” Under this proposal, independent workers would qualify for many, although not all, of the benefits and protections that employees receive, including the freedom to organize and collectively bargain, as well as civil rights protections. They would not, however, qualify for unemployment insurance benefits or hours-based benefits, such as overtime compensation or minimum wage requirements. The proposal seeks to structure benefits to make the independent workers status neutral when compared with employee status, with the ultimate goal of reducing legal uncertainty and legal costs that currently beset many independent worker relationships.[8] “One of the challenges we face is that public policy hasn’t kept up with changes in the workforce over the last 35 years,” says Harris. “Right now, we have an opportunity to develop the public infrastructure while the gig economy is still developing.”[9]

But while this proposal has excited many who closely followed the Uber lawsuit, it has yet to be drafted into any sort of legislation. And until this proposal or some other reform becomes reality, Uber, and other “gig economy” companies can count on more class-actions, more payouts, and more contention.

FOOTNOTES

[1] “Uber’s Class-action Settlement with Drivers Means Almost Nothing Is Changing.” Recode. N.p., 25 Apr. 2016. Web. 05 May 2016.

[2] Haden, Jeff. “The $100 Million Uber Settlement: Will the On-Demand Economy Change the Nature of Employment?” Inc.com. N.p., n.d. Web. 05 May 2016.

[3] Los Angeles Times. Los Angeles Times, n.d. Web. 05 May 2016.

[4] “Uber’s Class-action Settlement with Drivers Means Almost Nothing Is Changing.” Recode. N.p., 25 Apr. 2016. Web. 05 May 2016.

[5] Lopez, Linette. “There Was One Winner in the $100 Million Uber Settlement.”Business Insider. Business Insider, Inc, 04 May 2016. Web. 05 May 2016.

[6] Ibid.

[7] Los Angeles Times. Los Angeles Times, n.d. Web. 05 May 2016.

[8] Harris, Seth D., and Alan B. Krueger. “A Proposal for Modernizing Labor Laws for Twenty-First Century Work: The “Independent Worker”.” The Hamilton Project. N.p., 07 Dec. 2015. Web. 9 May 2016.

[9] Gurrieri, Vin. “Uber Cases Could Spur New Employee Classification – Law360.” Uber Cases Could Spur New Employee Classification – Law360. N.p., n.d. Web. 09 May 2016.