Uber’s driver versus independent contractor debate just took a huge turn.
In a blog post from Uber CEO Travis Kalanick, the company announced that it has reached a settlement in two class-action lawsuits in California and Massachusetts. Both suits contested that Uber should be classifying its drivers as employees instead of independent contractors.
And in a major win for Uber, both sides have agreed that drivers will remain independent contractors and not employees.
To reach this agreement, Uber had to offer a significant amount of concessions, including up to $100 million in payments to the 385,000 drivers represented in the cases.
Specifically, the company will pay $84 million now, with a second payment of $16 million if the company goes public and has its valuation increase 1.5X from its latest valuation (of $62.5 billion) in December 2015.
The company has also pledged to be more transparent about driver ratings by providing drivers with more information about their own rating, how it compares to their peers, and a new policy explaining in detail the circumstances that will lead to a driver getting banned from the platform.
Another big concession is that Uber has agreed not to penalize drivers who decline trips when logged into the app.
Previously, a driver could receive a warning, or even possible deactivation, if they declined a certain percentage of trips. This policy change was likely a signification part of the settlement, because requiring drivers to accept a certain percentage of trips could be interpreted as a job requirement that would consider them employees and not independent contractors.
Lastly, the company will create and fund a driver’s association in both states that will meet quarterly to discuss “the issues that matter most to drivers.”
While the settlement seems large, it pales in comparison to the additional costs that would be incurred by Uber if it had to treat drivers as employees and not independent contractors.
And while the decision only affects drivers in California and Massachusetts, and doesn’t resolve pending litigation in other states, it’s likely a precursor to similar settlements we may see in courts in other jurisdictions.