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Uber settles lawsuits to keep drivers as independent contractors in California and Massachusetts

Uber has reached a landmark settlement in two class-action lawsuits that will see it pay as much as $100 million to the drivers represented in the cases, but will allow it to keep categorizing them as independent contractors, rather than employees. As part of the settlement, Uber will also give drivers more information about their quality rating, will allow them to judge it against fellow drivers, and will lay out specifically the conditions under which it will deactivate drivers.

Under the two suits, brought in California and, Uber must pay $84 million to roughly 385,000 drivers, with a second payment of $16 million due if Uber goes public and its valuation increases one-and-a-half times from its December 2015 valuation inside a year.

Plaintiffs argued to be classified as employees

The two cases were brought in California and Massachusetts, but their effects are likely to be felt across the country, and by other companies that rely on the “gig economy.” The plaintiffs had argued that as Uber drivers, they should be classified as employees, and entitled to the benefits stipulated under the states’ labor laws. But by being allowed to continue classifying drivers as independent contractors, Uber doesn’t have to stump up the cost of these perks, driving down its operating costs and validating its business model. In concession, the company has promised to work with drivers to create and fund a drivers’ association, but only in the states in which the lawsuits were raised.

In a press release, Uber CEO Travis Kalanick said the company had not always done a good job working with its drivers. “For example,” he wrote, “we don’t have a policy explaining when and how we bar drivers from using the app, or a process to appeal these decisions. At our size that’s not good enough. It’s time to change.” As a first move toward this change, a new driver deactivation policy has been published, and the company has also agreed not to deactivate drivers who decline trips regularly, accepting that they have to deal with an emergency or just need a break.

Uber said it had done a poor job of communicating with its drivers in the past

Kalanick said that communication between driver and company was initially easy when Uber was founded, six years ago in San Francisco, but was harder now it had more than 450,000 registered drivers in the US alone. According to Kalanick, part of this growth was Uber’s ability to call drivers contractors, rather than employees, the CEO citing figures that said 90 percent of drivers chose Uber so they could “be their own boss.” Kalanick also cited Uber drivers who railed against the suit, including one who said they would quit if Uber tried to make them an employee, “because I value my freedom as an independent contractor too much.”

As the existence of the lawsuits shows, though, these opinions don’t necessarily represent the majority of Uber drivers, many of whom apparently want the peace of mind, reliable wage, and living benefits full employment offers. The company has failed to convince the court that its drivers are truly independent before — last year, a California commission ruled that an Uber driver who sued the company was indeed an employee, finding Uber “involved in every aspect of the operation,” and awarding the claimant $4,000. Today’s far more wide-ranging settlement determines the opposite, and represents a significant victory for the company.

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