Employers who wish to utilize independent contractors in their business model may often do so, however, adequate review of the employers’ documents and practices is crucial to a successful business plan based on an independent contractor workforce. This week, Uber learned this lesson the hard way.
Once approved by Judge Edward Chen of the District Court of Northern California, the San Francisco based on-demand ride-hailing service will have to pay up to $100 million to settle suits brought by its drivers in California and Massachusetts, who claimed employee status.
By claiming its drivers as independent contractors, Uber has avoided paying traditional driver expenses such as gas, mileage, insurance, and other benefits—which allowed the company to keep more of its profits and quickly grow a high potential sale price. Unfortunately, according to the settlement, Uber was exerting undue control over its drivers that made them appear more like employees, legally speaking. If classified as employees, Uber workers would be entitled to the significant benefits employees receive, which in turn would cut into Uber’s profits.
According to a report in the LA Times:
In addition to the monetary settlement, Uber will institute several changes in the way it disciplines drivers.
The company will no longer be able to deactivate drivers’ accounts at will. Drivers will now receive warnings and have an opportunity to correct any issues before they are cut from the service. The company will also stop deactivating drivers who turn down rides frequently.
Uber will create appeal panels and help drivers form an association so they can contest terminations.
If drivers are unhappy with the result of their appeals, they can bring their claim to an arbitrator at Uber’s expense.
The company will also institute an internal escalation process to handle disputes regarding driver pay.
Finally, Uber will make it clear to riders that tips are not included in Uber’s fares.
The initial lawsuit against Uber that led to this settlement was filed in California in 2013. For more information, click here.