Uber to pay $100m in a settlement deal to keep drivers as independent contractors

The settlement does not come without a significant amount of concessions for Uber.

Over 450,000 US drivers currently use the app each month

Uber agreed to pay up to $100 million to settle a class-action lawsuit, avoiding a trial that could have reclassified the work status of its drivers in California and Massachusetts.

The legal action contested that Uber should be classifying its drivers as employees instead of independent contractors, threatening the business model on which the company is founded.

Both sides have now agreed that drivers will remain independent contractors in what could be a major win for Uber.

The settlement is still pending approval by US district court judge but a hearing could happen as soon as June 2, according to court documents.

The settlement does not come without a significant amount of concessions for Uber.

Out of the $100 million proposed payment, the company will pay $84 million to its drivers. There will be a second payment of $16 million if the firm goes public and sees its valuation increase by one and half times from $62.5 billion, it’s latest valuation in December 2015.

Uber has also pledged to be more transparent about its drivers’ ratings and how it compares them to their colleagues.

It will also introduce a policy which will explain why they deactivate drivers, Travis Kalanick, Uber chief executive said in a blog post about the settlement.

Many drivers previously compained that Uber arbitrarily banned them from the platform.

The company will give funds for the formation of a “driver’s association” in both states to discuss issues.

The large payout is still less than it would have cost Uber to reclassify its drivers as employees and to provide benefits like healthcare and overtime pay.

“While the number of drivers using our app has grown dramatically, their reasons for doing so haven’t changed. In the US almost 90 per cent say they choose Uber because they want to be their own boss. Drivers value their independence—the freedom to push a button rather than punch a clock,” Kalanick said.

“That’s why we are so pleased that this settlement recognizes that drivers should remain as independent contractors, not employees,” he added.

Over 450,000 US drivers currently use the app each month, Kalanick said in the blog post.

Shannon Liss-Riordan, an attorney for drivers acknowledge that “some will be disappointed not to see this case go to trial” but she said the settlement was a warning to companies who “play fast and loose” by classifying their employees as independent contractors.

The settlement only affects drivers in California and Massachusetts but it is likely to set a precedent going forward for courts in other juridiction

Uber has also recently agreed to pay $10 million (£7 million) to settle a dispute over its background checks for drivers in San Francisco and Los Angeles.