In the end, the price tag to maintain the status quo on Uber's gig economy was $100 million. That may seem like a lot, but to Uber it's a paltry amount, representing only 1 percent of its total $10 billion war chest. Last night, the ride-hail giant agreed to cough up $84 million to settle two worker misclassification lawsuits in California and Massachusetts, as well as another $16 million if the company eventually goes public. In exchange, Uber gets to keep its business model — drivers are "partners" with the flexibility to make their own schedules, but lacking access to traditional benefits like health care — which has helped fuel its growth across the world, as well as its other worldly valuation of $62.5 billion — making it the most valuable technology startup on the planet. Drivers involved in the case get a few hundred bucks and a little more transparency from the company.
Don't be surprised if you don't see any Uber drivers celebrating in the streets
The settlement represents a huge win for Uber. If the lawsuit had gone to trial, and a jury decided that drivers indeed deserved to be full employees, then Uber could have suddenly found itself responsible for all sorts of extra costs, from Social Security payments to minimum wage requirements. Instead, drivers will stay freelance, and Uber keeps its costs low. Don't be surprised if you don't see any Uber drivers celebrating in the streets as a result of this settlement. Many were hoping for a much different outcome.
"Obviously the plaintiffs and drivers who wanted to be employees are going to be disappointed and they should be," said Harry Campbell, an Uber driver who runs a website called The Rideshare Guy. "Even though the lawsuit was settled, for those drivers, Uber really won this case and I wouldn't be surprised to see them challenge the ruling."
But drivers could end up eventually coming out on top, depending on how a couple of scenarios play out. First, the settlement needs to be approved by US District Court Judge Edward Chen, and everything he has said up until this point seems to suggest that he was looking forward to a jury trial. In December, he dramatically expanded the scope of the class action suit, effectively allowing the vast majority of California's UberX drivers to join the plaintiffs. Later, he slapped Uber for issuing new driver contracts that could muddle the details of the lawsuit.
It's not a sure bet that Chen will give the green light to the settlement
It's not a sure bet that Chen will give the green light to the settlement. A similar settlement agreed to by Uber's main rival Lyft was rejected by a district court judge, who said he thought the $12.25 million amount would have "shortchanged" drivers. The plaintiffs in Uber's case were seeking $3.4 billion, a fairly ridiculous sum but one they thought they were owed. Chen could decide that $100 million isn't enough compensation, or that the reforms Uber is promising — more transparency, an ability for drivers to solicit tips and challenge deactivations through arbitration, recognition from Uber of quasi-union "driver associations" — don't even scratch the surface.
But even if Chen approves the settlement, there are other ways that Uber drivers could ultimately prevail in their war against the company. A bill in the California State Assembly would allow drivers and other gig economy workers to organize and collectively bargain, much like a measure recently passed by Seattle's city council. The bill passed the Assembly's labor committee, but was held in another committee by the sponsor, Assemblywoman Lorena Gonzalez (D-San Diego) so that lawmakers could "take the time this issue deserves to get this right." She said she is going to work closely with her colleagues, as well as workers in the gig economy, to craft a more thoughtful plan.
"take the time this issue deserves to get this right"
Uber is following the same strategy it did during the debate in Seattle: stay silent and let business groups like the Chamber of Commerce lead the opposition. But it's clear that if the law passes, Uber's ability to continue to treat drivers as contractors would be seriously stymied. And a successful push by the labor movement in the state could incentivize other states to adopt similar laws.
But more so than anything else, this settlement will likely set off a domino effect of other legal challenges that could end up seriously costing Uber in the long run. There are other actions pending in Florida, Arizona, and Pennsylvania, and labor lawyer Darren Oved says he wouldn't be surprised to see more cases spring up in Uber's other big markets as a result of this settlement.
"You run the risk of either creating a template of how you want to settle"
"Whenever you are a company and you have these multiple-front litigations, and you settle on the one front, that doesn't really resolve the issues on the other fronts," Oved said. "You run the risk of either creating a template of how you want to settle the other litigations, or in other jurisdictions where these litigations haven't come up yet, you run the risk of motivating other people to commence a class action like in California and Massachusetts, [because] they want to do that in hopes of getting a similar settlement."
Shannon Liss-Riordan, the attorney representing drivers in the California's class action, said in a lengthy statement Thursday night that the most important takeaway was that this particular case may be settled, but the question of whether Uber drivers were being misclassified was not. Without any jurisprudence on the most critical issue, there is nothing preventing others from championing the cause in the future. "Importantly, the case is being settled — not decided," she said. "No court has decided here whether Uber drivers are employees or independent contractors and that debate will not end here."