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Uber Faces Setback in Independent Contractor Litigation; Court Rejects Proposed $100M Settlement

Owen H. Laird, Esq.

As we have previously discussed, Uber, the multi-billion dollar company behind the eponymous smartphone taxi app, is in a long-term dispute with its drivers over benefits and pay.  This dispute stems from Uber’s classification of its drivers as independent contractors rather than employees.  Last week, a federal court in California threw out a proposed agreement between Uber and its drivers that would have allowed Uber to continue classifying them as independent contractors.


Drivers filed class action lawsuits in Massachusetts and California challenging Uber’s classification.  Earlier this year, Uber reached agreement on the settlement with the two groups of drivers.  Under the terms of the settlement, Uber could continue classifying its drivers as independent contractors, but was required to pay its Massachusetts and California drivers a total of $100 million, allow them to accept tips, and permit them to investigate forming driver collectives.


The distinction between independent contractors and employees matters because independent contractors are not covered by most of the protections provided by antidiscrimination and wage-and-hour laws that apply to employees.  Generally speaking, independent contractors have more control over the terms and conditions of their work; independent contractors may decide when and how to do a job, while an employee might be told when to be at work and how to do the work by their employer. Uber, by classifying its drivers as independent contractors, avoids having to compensate them for expenses related to their vehicles or pay them the minimum wage or overtime premiums.


Under the Fair Labor Standards Act (FLSA) – one of the statutes on which the Uber suit was based – the court handling the case needs to approve of any settlement agreement waiving FLSA rights.  Last week, a District Judge for the Northern District of California rejected the proposed settlement, on the grounds that it did not provide fair and adequate compensation to the drivers.


Both sides must now either renegotiate the terms of the agreement or prepare for the litigation of the case.  Drivers in many other states have filed or are organizing their own class action lawsuits against Uber on the same grounds.


Although the rejection of the settlement is a setback for Uber, the question of whether its drivers are independent contractors or employees might be answered by an unexpected development – the advent of driverless cars could eliminate Uber’s need for drivers altogether.  Uber recently reached an agreement with Volvo to deploy a fleet of driverless cars in Pittsburgh.


These classification lawsuits may only be the first round of litigation between Uber and its employees.  Uber is valued in the tens of billions of dollars in large part because it is able to utilize technology to restructure the passenger/driver dynamic; Uber profits by avoiding existing regulations and shifting costs onto its workers.  Uber may be planning for a future with no drivers at all, but its drivers – just as they opposed Uber’s independent contractor classification – will likely oppose any development that would put their jobs at risk.


If you believe that you are improperly classified as an independent contractor, contact The Harman Firm, LLP.

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