A San Francisco district judge has ruled that the amount is not enough
Uber suffers another blow in the quest to classify its drivers as contractors rather than employees. A federal judge in San Francisco rejected the company’s offer to pay $100 million in settlement to its drivers in California and Massachusetts, which shows that the company may not win the settlement case.
District Judge Edward Chen rejected the settlement amount and said it was too less for the drivers who registered with the company as employees and not contractors. The amount was dubbed as “unfair, inadequate, and unreasonable for drivers.” Uber has now been asked by the court to increase the amount.
As part of the settlement, Uber had decided to pay $100 million to its drivers so that they continue to operate as contractors and not as employees. The company will need to pay $84 million upfront, followed by another $16 million to employees if the company goes public — valuation could increase by more than half once the company goes public.
Judge Chen feels that drivers will be at risk if the case goes for trial and thus wants to give another chance to both parties. He also was not convinced that by changing the company’s tipping policy drivers would earn more. He maintained that tips would only provide a marginal increase to the income of drivers.
The judge has asked both parties to re-evaluate the settlement amount and appear in court on September 15. Uber, in response to the decision, said that it is disappointed and says the amount was agreed upon by both parties.
The suit represents about 385,000 drivers from both states, California and Massachusetts, where drivers have asked Uber to pay them for gasoline, car, and other expenses that they have incurred. Had the settlement been accepted by the judge each driver from the two states would have received only $100.
Uber has changed its business models over the years: classifying drivers as contractors to keep costs down. With the classification, drivers are not entitled to receive any bonuses, medical, insurance, gas allowance or any other benefits.
The drivers' attorneys estimate the settlement to be around $1 billion to cover all expenses borne by the drivers. But in most cases, only a small fraction of the claim is awarded. The case is being closely watched by the ride-hailing industry since most companies classify their drivers as contractors. Classifying them as employees will increase labor costs by almost 20% for companies.
Uber believes it cannot classify drivers as employees as they work on a freelance basis. Most drivers work only for a few hours after they are done with their full-time jobs. Once classified they will be required to follow proper timings and wear uniforms.
Drivers feel Uber has already enforced strict rules on them, which is why they should be classified as employees. The company requires perfect vehicle condition with no defects, and can terminate a driver without any prior warnings. While Uber’s settlement was not approved, its rival Lyft gained an edge by getting a $27 million preliminary settlement approved by the judge.
The decision comes a day after Uber announced that it will begin testing out its autonomous cars in Pittsburgh by the end of this month. The company has been a proponent of self-driving cars. It will not have to face any driver classification lawsuits with such cars. Uber has already acquired self-driving truck startup Otto, and entered a $300 million partnership with Volvo, to start its autonomous journey in Pittsburgh.