Gig News: Uber, Drivers Settle O'Connor Federal Class Action Over Independent Contractor Classification

Jon Weinberg

Jon Weinberg is a student at Harvard Law School.

As Gloria reported earlier today, Uber and drivers represented by Shannon Liss-Riordan have settled both the O’Connor suit in California and a similar claim in Massachusetts.  The actions concern Uber’s classification of drivers as independent contractors instead of as employees.

Uber will pay drivers $84 million to $100 million.  Under the proposed settlement, drivers will remain independent contractors.  Uber will create a driver deactivation policy with protections against at-will deactivation, and also facilitate the creation of drivers’ associations in California and Massachusetts.  Drivers will also be able to solicit tips.

O’Connor had been set for a June trial before Judge Edward Chen of the Northern District of California, who must approve the settlement, and the major issue going into trial was the enforceability of Uber’s driver arbitration clauses, with repercussions for the size of the driver class.  Below are statements about the settlement provided to OnLabor by Shannon Liss-Riordan and Uber, respectively.

Statement of Shannon Liss-Riordan:

We are very pleased to announce that Uber has agreed to a historic settlement of the claims we have brought in California and Massachusetts for misclassifying its drivers as independent contractors.

Under this agreement, Uber has agreed to pay up to $100 million to resolve these claims and will implement a number of significant policy changes.  (Of the payment, $84 million is guaranteed and $16 million is contingent on an increase in Uber’s future value.)  These changes include:

– Uber will no longer be able to deactivate drivers at will.  Instead, drivers may only be terminated for sufficient cause.  And drivers will receive warnings in most instances and thus opportunity to correct any issues prior to deactivation.

– Drivers will not be subject to deactivation for low acceptance rates.

– Uber will institute appeal panels (made up of highly rated drivers) so that drivers who believe they have been unjustly terminated may bring their concerns to a panel of their peers.

– Drivers who are not satisfied with the result of these appeals can bring their claim to a neutral arbitrator, at Uber’s expense, who will determine if there was sufficient cause for the deactivation.

– Uber will institute an internal escalation process for disputes regarding their pay.

– Uber will facilitate and recognize the formation of a Driver Association, which will have leaders elected by fellow Uber drivers, who will be able to bring drivers’ concerns to Uber management, who will engage in good faith discussions (on a quarterly basis) regarding how to address these concerns.

– Finally, under the agreement, Uber will make clear to riders that tips are not included in Uber’s fares.  Drivers will be permitted to put small signs in their cars stating that “tips are not included, they are not required, but they would be appreciated.”

We believe these to be very significant changes that will improve work conditions for Uber drivers.  While this case has been pending, we have heard many complaints from drivers about being deactivated without good cause and frustrations about pay issues that they have not been able to get addressed by Uber management.

We have also heard many concerns that Uber does not consider how its policies impact its drivers and don’t take the drivers’ views into account when setting policies.  The formation of the driver association – while not an officially recognized union – can play a role similar to a union, to bring drivers’ grievances and concerns to Uber management, who will meet with the association’s leaders on a quarterly basis to engage in good faith discussions about issues of concerns to drivers.

And finally, we believe it is a significant achievement that Uber will now be clear to riders that tips are actually NOT included in Uber’s fares.  Drivers will be able to place signs in their cars informing riders that tips are not included, and while they are not required, they would be appreciated.  By Uber making clear to riders that tips are not included, we believe that many riders will now tip their Uber drivers because riders have been under the impression from Uber’s prior communications that tips are included in the fares.  When riders have the correct information, we expect they will be generous and appreciative of good service and many will tip their drivers.  As a result, we expect that Uber drivers will receive substantially more pay as a result of riders’ generosity, when riders are no longer under the misimpression that tips are already included.

We realize that some will be disappointed not to see this case go to trial in June.  We were looking forward to this trial.  But we believe the settlement we have been able to negotiate for Uber drivers throughout California and Massachusetts provides significant benefits – both monetary and non-monetary – that will improve the work lives of the drivers and justifies this compromise result (which will not result in the drivers being reclassified).

Importantly, the case is being settled – not decided.  No court has decided here whether Uber drivers are employees or independent contractors and that debate will not end here.  This case, however, with this significant payment of money, and attention that has been drawn to this issue, stands as a stern warning to companies who play fast and loose with classifying their workforce as independent contractors, who do not receive the benefits of the wage laws and other employee protections.  As a result of this litigation, many companies have chosen to go the other way and not fight this battle, and instead to classify their workers as employees with all the protections that accompany that classification.

And if we chose not to settle this case, we faced risks.  We faced the risk that a jury in San Francisco (where Uber is everywhere and quite popular) may not side with the drivers over Uber.  We faced a risk that the Ninth Circuit may disagree with the district court on his rulings certifying the case as a class action and holding Uber’s arbitration clause to be unenforceable.  If the Ninth Circuit Court of Appeals had disagreed with the district court on either of these two points, then the vast majority of Uber drivers would never receive anything at all for these claims and the non-monetary changes that are being made as a result of this settlement would not occur.  Just recently, the Ninth Circuit issued an unusual order agreeing to review the district court’s class certification order right away, possibly before the upcoming trial (and may have issued an order to delay the trial).  And even if the Ninth Circuit agreed with us and affirmed the district court’s rulings regarding class certification and arbitration, Uber made clear it would try to appeal this case to the U.S. Supreme Court, which has been quite friendly in recent years to companies using arbitration agreements to prevent individuals from banding together to hold companies accountable to complying with the laws on a classwide basis.

Thus, if we had not settled, there were some serious risks that all we have fought for – and have achieved – could be taken away.  We balanced this risk in deciding what would be a fair resolution of this case.

It is our hope and belief that this agreement – a historic agreement – and one of the largest ever achieved on behalf of workers claiming independent contractor misclassification – will provide significant benefits to drivers, both monetary and non-monetary, that will improve their work lives, will increase their income through providing clarity to passengers regarding Uber’s tipping policies, and will foster a constructive dialogue between drivers and Uber regarding issues of concern to drivers, so as to improve the work lives of the drivers and improve how the company operates with greater input from the drivers themselves who are the backbone of the company.

Moreover, the payments drivers will receive under this settlement are significant.  We have calculated the estimated distribution for drivers who have driven different amounts of miles with Uber passengers in the car.  Drivers falling into the category of those who have driven the greatest number of miles (more than 25,000) may receive $8,000 or more on average (if they opted out of Uber’s arbitration clause, and if the claim rate for the settlement is what is expected, approximately half).  Drivers who drove fewer miles will receive lower shares.  The formula accounts also for whether the drivers worked in California or Massachusetts (more of the settlement is allocated for California), whether they were included in the certified class (those who were will receive double credit for their miles), and whether they opted out of Uber’s arbitration clause (those who did will also receive double credit).

We are very proud of this achievement and look forward to these changes being implemented for the benefit of Uber drivers.

Statement of Uber CEO and Co-Founder Travis Kalanick:

   Today we announced a settlement in two important class-action lawsuits: O’Connor (California) and Yucesoy (Massachusetts). The key issue at stake in both cases is whether drivers using the Uber app should be classified as independent contractors or employees.
   As part of this settlement, which covers all classification claims involving Uber in California and Massachusetts, the two sides have agreed that:
  • Drivers will remain independent contractors, not employees;
  • Uber will pay $84 million to the plaintiffs. There will be a second payment of $16 million if Uber goes public and our valuation increases one and a half times from our December 2015 financing valuation within the first year of an IPO;
  • Uber will provide drivers with more information about their individual rating and how it compares with their peers. Uber will also introduce a policy explaining the circumstances under which we deactivate drivers in these states from using the app; and
  • We will work together to create a driver’s association in both states. Uber will help fund these two associations and meet them quarterly to discuss the issues that matter most to drivers.
   Six years ago when Uber first started in San Francisco, it was easy to communicate with the handful of drivers using the app. Austin Geidt, who ran marketing, called each one regularly to get their feedback and make sure things were working well. It was clear from those early conversations that drivers really valued the freedom Uber offered.
   Today, while the number of drivers using our app has grown dramatically, their reasons for doing so haven’t changed. In the U.S. almost 90 percent say they choose Uber because they want to be their own boss. Drivers value their independence—the freedom to push a button rather than punch a clock, to use Uber and Lyft simultaneously, to drive most of the week or for just a few hours.
   That’s why we are so pleased that this settlement recognizes that drivers should remain as independent contractors, not employees. As one driver told the court: “I’ve been an employee and an employer, and I’ve also been an independent contractor. I know the difference between these things. With Uber, I’m an independent contractor. And I wouldn’t have it any other way.” As another said: “I wouldn’t even want to be an Uber employee. I would quit if they tried to make me an employee, because I value my freedom as an independent contractor too much.”
   That said, as Uber has grown—over 450,000 drivers use the app each month here in the U.S.—we haven’t always done a good job working with drivers. For example, we don’t have a policy explaining when and how we bar drivers from using the app, or a process to appeal these decisions. At our size that’s not good enough. It’s time to change.
   So today we’ve published a driver deactivation policy for the first time. It will apply across the United States, and our goal is to roll out similar policies globally over time. You can read it in English, Spanish, Mandarin and Arabic, with more languages to follow.
   It’s incredibly important that when people use Uber, they have a great experience—one that is safe, reliable, convenient and a good value. Otherwise, fewer passengers will use the app over time, which is bad for everyone. The policy explains why drivers are deactivated, the warnings we give and the circumstances in which drivers can use the app again.
   Sometimes it’s clear that a driver shouldn’t be allowed on our platform: we permanently deactivate drivers who are violent, drink and drive, or refuse someone a ride because of the color of their skin or sexual orientation (it happens, sadly). But what if a driver’s rating declines due to poor driving or a smelly car? (And it’s not just bad smells that cause problems—we do get complaints about too much Febreze.) In those cases we let the driver know that there’s an issue and, if things don’t improve, we deactivate their account. We’re also working with a number of companies to provide affordable quality improvement courses.
   As part of this settlement, Uber has agreed not to deactivate drivers who regularly decline trips when they are logged into the app. If too many drivers decline the rides we send their way, it undermines the reliability of the service for riders. But we understand that drivers need breaks, and sometimes things come up—maybe a kid has gotten sick at school. When drivers aren’t available, we’d just ask they turn off the app. And where drivers do have low acceptance rates—perhaps because they are multitasking at home—we will alert them to the issue. If things don’t pick up, we may log them out of the app for a limited period of time.
   Uber has become an important part of many drivers’ lives, whether they drive all week or for a couple of hours to help pay the bills. So we’ve agreed to create an appeals process in California and Massachusetts for drivers who disagree with these decisions. In fact, we’ve been working on a pilot in Seattle for the last few months, which includes having other drivers hear these appeals. Our hope is that this kind of peer review process will improve transparency and accountability and give drivers an additional voice. If this approach is successful, we’ll look at rolling it out across the U.S.
   Uber is a new way of working: it’s about people having the freedom to start and stop work when they want, at the push of a button. As we’ve grown we’ve gotten a lot right—but certainly not everything. This new deactivation policy is an important step forward when it comes to working with drivers. But there’s more to do, which is why I’m excited about some other improvements we have planned for the not too distant future. Stay tuned.

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