Ride-hailing giant Uber has proposed to make a $20 million settlement payment to its drivers, hopefully bringing an end to a 5-year legal battle between the company and its “contractors.”
The settlement will end one of the company’s longest-running legal battles and get rid of the major impediment to the company’s expected Initial Public Offering (IPO) filing. In addition, the settlement will see Uber keep the classification of its vehicle drivers as “independent contractors,” as opposed to “workers” or “employees.”
This way, the company will maintain its business model, and remain attractive to investors once it goes public. The court filing was put in motion earlier this week, but it’s yet to be ratified by the United States District Judge Edward Chen.
Hope for Uber’s IPO Filing
The ride-hailing giant is expected to pull through on its plans to go public, before the turn of the year. It’s facing increasing pressure now that its primary rival Lyft, submitted its IPO filing earlier this year.
To speed things up, the company has worked tirelessly over the past few months to put some of its legal disputed to bed.
Speaking in an interview with news outlet CNET, a spokesperson for the company said, “Uber has changed a lot since 2013. We’re pleased to reach a settlement on this matter, and we’ll continue working hard to improve the quality, security, and dignity of independent work.”
The Convenient “Contractor” Tag
Classifying workers as contractors is something that a lot of companies are beginning to adopt these days, thanks to the underlying legal and contractual implications.
This kind of classification is popular with companies operating in the “gig provision economy.” These include IPO-bound Uber and its rival Lyft, food delivery app DoorDash, and Instacart. By classifying their workers (drivers, delivery workers, and so on) as contractors, these companies can save millions of dollars in expenses on an annual basis.
These include paying workers for paid sick leave, overtime, Social Security, healthcare insurance, unemployment benefits, and other sub-salary benefits that conventional company employees are privy to.
Most of Uber’s drivers are even classified as “driver-partners,” with this spin essentially meaning the same thing.
Is the Suit Done?
The suit was first filed in 2013 by Shannon Liss-Riordan, a lawyer based in Boston, who sought to change the employment classification of Uber drivers—from contractors to employees.
Liss-Riordan’s suit listed the company’s drivers based in Massachusetts (11,000 drivers) and California (2,600 drivers). Uber’s first attempt to settle involved a $100 million offer, but it was rejected by Judge Chen, who branded it as “unfair, unreasonable and inadequate.”
According to the terms of the new settlement, Uber will make a payout of $20 million to see off the entire class-action lawsuit, and each driver named in the suit is expected to receive an average individual settlement of $2,206 after paying legal fees and administrative costs.
Beyond the financial compensation, Uber will restructure its operation in Massachusetts and California.
The San Francisco based startup now has to issue warnings to drivers before their accounts are deactivated, and set up an appeal process for the drivers to plead their case.
For the settlement to go into effect, it still needs to be signed off on by Judge Chen. He’s set to hear the two sides’ motion on the suit in a March 21 hearing in San Francisco.