Uber’s rapid success has not come without its fair share of controversy, though one of the company’s biggest threats moving forward was recently settled in court.
According to The Wall Street Journal, Uber Technologies Inc. has settled two class-action lawsuits in California and Massachusetts involving a total of 385,000 drivers. As a result of the settlements, Uber can continue classifying its drivers as contractors instead of full-time workers.
The settlement will help Uber to avoid a jury trial in June, pending the approval of U.S. District Judge Edward Chen. While maintaining the contractor status for drivers was a major win for the ride-hailing company, it has been ordered to pay a combined $100 million to the drivers in each lawsuit.
Additionally, Uber will be required to change its practice of deactivating drivers. The company will now have to explain its reasoning for terminating each driver, and in most cases, they will not be allowed to fire an employee without a prior warning. Drivers will also have the option to request tips from customers if they so choose, pending Judge Chen’s approval.
“We realize that some will be disappointed not to see this case go to trial,” said Shannon Liss-Riordan, the attorney representing the Uber drivers.
“We believe the settlement we have been able to negotiate provides significant benefits — both monetary and non-monetary — that will improve the work lives of the drivers and justifies this compromise result,” she added.
The U.S. is expected to have about 260 million cars on the road by 2018, and this rapid increase is largely due to the popularity of Uber. These lawsuits were considered to be a major threat to Uber’s success due to the ancillary expenses that the company would have been forced to incur.
If Uber was defeated in these lawsuits, they would have needed to classify all drivers as employees. They would then need to start paying billions of dollars in health benefits and auto expenses, which would make their high-profit business model almost impossible to sustain.
While Uber seems to have avoided catastrophe for now, their brand may have already suffered as a result of these lawsuits. As the San Francisco Examiner reported, the Teamsters Joint Council 7 in California has begun organizing a union specifically for Uber and Lyft drivers to address any complaints that the contractors may have.
Uber’s recent legal struggles have forced many similar “on-demand app” companies to reconsider their business practices. Popular home-cleaning service Homejoy Inc. has been unable to secure new investors, and valet-parking app Luxe Valet Inc. is now classifying all workers as employees.