Uber drivers’ $100M deal may set pace for gig economy

Uber Technologies Inc. resolved the biggest threat to its business by settling with California drivers suing to be treated more like traditional employees, a move that could have broad-ranging implications for companies across the sharing economy.

The agreement calls for Uber to pay as much as $100 million to drivers in California and Massachusetts and allows them to solicit tips from riders, but keeps them classified as contract workers instead of formal employees, according to statements by a lawyer for the drivers and the company.

With a valuation of $62.5 billion, Uber is the biggest firm in the sharing economy where a fight has been brewing over how companies classify workers. The settlement could guide other companies in the gig economy trying to address worker unrest.

The definitions of employees and contractors have grown blurry in the sharing economy, which is caught in a hazy zone of laws and regulations written decades ago. Worker advocates remain divided over whether those who labor in the app-enabled casual workforce demand a new legal category. The California drivers’ lawsuit was one of the biggest and most advanced challenges to Uber’s ride-sharing business model, which is still under attack worldwide by the taxi industry, local governments, unions and even passengers.

“Uber avoids the collision and an adverse finding that these folks are employees,” James Evans, a lawyer who defends companies against employment suits, said about Uber’s efforts to settle the matter. “They leave it an open issue, and that’s desirable from their standpoint. This maintains the status quo, without figuring out if these people should be treated differently or not.”

The class-action lawsuit, set for trial June 20 in San Francisco, had grown to cover about 240,000 current and former Uber drivers in California over claims they were wrongly classified as independent contractors and should be reimbursed for expenses and tips. Those claims under state law would have totaled hundreds of millions of dollars if the world’s biggest ride-hailing service lost at trial. Additional penalties against the company might have added several hundred-million dollars more to the cost of a losing verdict.

Under the agreement filed Thursday, which requires court approval, Uber will initially pay $84 million to the drivers, with another $16 million contingent on Uber’s valuation continuing to grow in coming years, according to driver attorney Shannon Liss-Riordan’s statement. A quarter of the payout will go toward attorney fees, according to Liss-Riordan.

The case is O’Connor v. Uber Technologies Inc., 13-cv-03826, U.S. District Court, Northern District of California (San Francisco).