Since its inception, Uber has maintained that the drivers on its platform are freelancers and not employees of the company. That helps the company keep costs low, because it doesn’t have to pay monthly salaries or benefits.
But maintaining the ‘independent contractor’ status of its workforce has cost it a pretty penny. Uber has settled lawsuits in California and Massachusetts by paying $84 million to the 385,000 plaintiffs in two cases brought against it in 2013, over whether its drivers should be classified as employees.
In concession, the company has promised to work with drivers to create and fund a drivers’ association, but only in the states in which the lawsuits were raised.
The company argues that the outcome is a win for drivers because they retain their flexibility to work on their own terms and also switch to other platforms like Lyft whenever they please.
Uber will also have to pay an additional $16 million if the company goes public and its valuation increases one and a half times from its December 2015 valuation within a year.
In addition, it will create and fund driver’s associations in both states to discuss the issues affecting drivers every quarter.
In a blog post, CEO Travis Kalanick acknowledged that the company hasn’t always worked well with drivers. A first step towards addressing that, he wrote, is a new deactivation policy that will first roll out across the US and later expand to other countries.
If a driver’s rating begins to drop, Uber will now let them know of the complaints they’ve received from passengers. It has also agreed not to deactivate drivers’ profiles if they decline trips too often, as it understands that they might have emergencies or other issues to deal with.
While that sounds like good news for drivers, it’s clear that the settlement is really a victory for Uber. The ability to bring drivers on board without having to bother with hiring processes or pay packages is what has allowed the cab service to grow so rapidly across the globe.
It remains to be seen just how many more times Uber has to prove that this model is indeed better for drivers in other states and countries.