Uber has agreed
to pay up to $100 million to settle a class-action lawsuit which resolves a
major challenge to its business model by allowing the ride-hailing service to
keep its California and Massachusetts drivers as independent contractors.
The lawsuit had
claimed that Uber [UBER.UL] drivers are employees and thus entitled to
reimbursement of expenses.
The case against
Uber had been closely watched in Silicon Valley, as other companies in the
on-demand tech economy share Uber's reliance on independent contractors. The
class action had been scheduled for a trial in San Francisco federal court in
June.
"We realize
that some will be disappointed not to see this case go to trial," said
Shannon Liss-Riordan, an attorney for drivers.
However,
Liss-Riordan said the plaintiff drivers faced significant risks of losing if
the case moved forward, particularly because a federal appeals court had
recently agreed to review an order allowing Uber drivers to sue as a group.
Nothing about
the settlement prevents a future court, or U.S. labor authorities, from deeming
Uber drivers as employees, she said in a statement.
DRIVER
DEACTIVATION
Out of the $100
million proposed payment, $84 million is guaranteed to drivers. Uber could also
pay an additional $16 million, but only if the company's valuation grows by 150
percent above its December 2015 financing round within a year after any initial
public offering.
Uber was valued
at $62.5 billion in that December funding round.
Uber agreed to
some changes in its business practices, including the institution of a policy
for deactivation of drivers, chief executive Travis Kalanick said in a blog
post about the settlement. Some drivers had long complained that Uber
arbitrarily terminated users from its platform.
Uber is
"pleased" that the deal "recognizes that drivers should remain
as independent contractors, not employees," Kalanick said in the post.
The company also
agreed to help create a drivers' association in both states. Liss-Riordan said
that while such groups are not officially a union, they can act like a union in
bringing grievances to management's attention.
The settlement
is similar to a separate agreement announced with Lyft drivers earlier this
year, though the Uber agreement is much larger given that Uber has many more
drivers.
Over 450,000
U.S. drivers currently use the app each month, Kalanick said in the blog post.
The Uber deal
must be approved by U.S. District Judge Edward Chen in San Francisco.
(Reporting by
Dan Levine; Additional reporting by Heather Somerville; Editing by Michael
Perry and Muralikumar Anantharaman)
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