Uber Pays Drivers $20 Million to Settle Contractor Dispute

The drivers argued they should be classified as employees, not contractors.


Mohamed Ahmed Soliman | Dreamstime.com

Uber is out $20 million. The ride-hailing company has agreed to settle a six-year-old lawsuit with drivers who argued they should be classified as employees—not contractors—and therefore deserve benefits and wage protections.

Although Uber will hand a decent payout to the 13,600 drivers named in the suit, the company will not change their employment status. That's a victory for its freelance-based business model amid an onslaught of similar lawsuits.

Shannon Liss-Riordan, an attorney for the drivers, calls the settlement "substantial." Drivers will pocket about 37 cents for each mile they've driven for Uber, which, on average, will amount to more than $1,000 per person.

Still, the company just avoided a major roadblock. If drivers transitioned from contractors to employees, Uber would be obliged to provide a minimum wage, paid time off, worker's compensation, and reimbursement for expenses, among other things. That would upend the app's flexible approach and send overhead costs through the roof—making the $20 million payout look like pennies in comparison. Massive driver layoffs and stratospheric ride prices would inevitably follow.

Vulnerable populations stand to lose the most from reduced access to rideshare opportunities. In New York City, for instance, a staggering 90 percent of app-based drivers are first-generation immigrations who speak English as a second language. Uber's current driver qualifications—they must be 21 years of age, have a valid driver's license, and own a decent car—allow large swaths of people to get ahead on the ride-hailing app. But the barriers to entry would be much higher if the company were encumbered with such heavy costs per driver.

Fewer drivers would beget fewer rides and higher prices. Individuals in thinly populated, poorer communities would have a harder time getting around, as the remaning Ubers would likely huddle in bustling areas where surge pricing ensures a better payoff. And increased fees would render the app prohibitively expensive for some, particularly those who already cannot afford a taxi.

Despite Uber's success this week, its troubles are far from over. A California Supreme Court ruling in April of last year made it increasingly burdensome for the company to justify classifying its drivers as freelancers. Thousands of claims are still awaiting arbitration. And several other gig-economy giants—including Lyft, Amazon, GrubHub, DoorDash, Postmates, and Handy—have similar lawsuits pending.

But Uber won't be pumping the brakes anytime soon, as it intends to go public later this year. In a statement, a spokesman said that the company "has changed a lot since 2013," citing improved driver experience through in-app tipping and a new rewards program. It has also promised to alter the process by which it removes operators from the app and plans to institute driver remediation classes as well as an appeals procedure.

"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 spokesman said.

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  1. If I was a driver, wouldn’t I want to preserve the ability to file a schedule C and deduct operating expenses? As an employee there would be no unreimbursed employee expense deduction under the new tax law. I’m sure part of the analysis depends on whether I have a full time job that covers benefits or whether Uber reimburses expenses (and I don’t really care to look it up). Just seems weird to me that drivers would want to be employees.

    1. Exactly. Employment status is WAY worse for them. They were pawns in this action.

      1. What, you mean suddenly being required to clock and keep certain hours while getting a paltry PTO plan wouldn’t outweigh keeping your own schedule and doing basically whatever you want? The benefits portion might be a sticking point, but unless you’re a long haul trucker you probably don’t log enough miles to be worth that extra cost.

        Not to mention the whole ‘most of you will be automatically fired if this goes through’ part.

      2. The Uber drivers are just useful idiots for the unions.

        I still can’t see the justification for Uber drivers being employees, yet a someone leasing a taxicab for a 12 hour shift is a private contractor. This probably will come back to bite the taxi drivers they’re trying to protect.

        1. Cannot that description be applied to all union members since about 1930?

          Riddle me this: What’s the difference between a gang and a union?

          1. Unions are protected from RICO suits.

    2. The lawsuit was a setup from the beginning. If those drivers wanted to be employees of a traditional taxi company, they could have hired into one of those companies from the beginning.

      From what I can tell, the actual plaintiffs in this case were traditional taxi employees who doubled as Uber drivers as a pretext so they could bring this suit and shut down their competition.

  2. Different rules on benefits for part-time staff and full time staff. So the freedom of work when you want would go away.

    Also, some places such as NY are playing around with or have scheduling laws.

    1. Freedom to work..

  3. Government Almighty’s gotta get their cut. These useful idiots were just pawns.

    1. Bingo. Follow the money.

      If everyone works 40-hour-a-week standard shifts with a W-2, income tax collection is much easier.

      The fact that that model doesn’t fit a whole bunch of jobs gets lost in the shuffle.

  4. Don’t know why they “deserve” benefits. Plenty of employers don’t offer benefits outside of legal requirement like worker’s comp.Especially for low paying jobs like this.

    Uber and Lyft will just morph into internet dispatched taxi services soon, because of the constant governmental interference and labor issues like this.

    The model is broken. And can in no way be profitable for anyone.

  5. The lawyers cut= $6,400,000.00.

  6. Sounds like Uber needs a stricter vetting process to their driver base.

    1. Are you a registered Democrat? ( If Yes; please look for a job somewhere else )

    Obviously these drivers never REALLY wanted a paying job. They just wanted a scape-route to legally steal from others their own personal benefits. Last I understood; Uber was a broker. Brokers don’t guarantee anything! All they do is mediate work for owner-operators..

    This ruling must have come out of a Liberal Court appropriated by Obama and his ilk.

  7. One more time: I can’t legally agree to work for you as an independent contractor rather than an employee if the law says otherwise, any more than I can legally agree to work for you for less than the minimum wage.

    I can agree not to sue you about it, but not to pretend the law isn’t what it is.

    Whether the law does or should “say otherwise” is the real issue, not whether hush money is somehow more ethical when paid by Uber than paid by, e.g., Trump.

    1. Uber drivers are quite obviously not employees, as they can set their own hours.

  8. As a freelance wordsmith, I certainly feel for these Uber drivers who likely enjoy the freedom to work their own hours. I know one guy who takes one job a day – for his 1 hour commute home. If that one job can pay his entire commuting costs, why should the government take that ability away by forcing him to become an employee?

    I’m lucky* my industry hasn’t taken off like Uber, or else we’d be worried about government interference as well.

    * – Of course, then Reason might actually be able to hire an editor

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