Dive Brief:

• Uber has settled two major class action suits that went far in securing its ability to treat its drivers as independent contractors. Some 385,000 Uber drivers in California and Massachusetts are covered by the agreement.

• Under the settlement, Uber will pay drivers $84 million, with an additional $16 million if the company goes public and its “valuation increases one and a half times from our December 2015 financing valuation within the first year of an IPO.”

• Uber has also agreed to be more transparent with drivers about their ratings. The company will now allow drivers to accept tips, to form an “association” but not a union to bring grievances to the company, and will allow drivers to appeal deactivations, including bringing grievances to Uber through a special panel or an arbitrator.

Dive Insight:

While this is technically a win for the Uber drivers that brought these suits, it’s also a major victory for Uber, whose treatment of drivers as independent drivers was increasingly called into question by worker advocates and regulators. Retaining that independent contractor status allows Uber to keep costs low by avoiding a plethora of obligations, from minimum wage and taxes to employee benefits and job security.

In a blog post on the agreement, Uber co-founder and CEO Travis Kalanick characterized it as a matter of Uber “growing and growing up.”

“[A]s 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,” he wrote. “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.”

For her part, attorney Shannon Liss-Riordan, who represented the drivers, said that there was a risk in taking the case to trial and that Uber and other employers using contract workers are on notice.

“We realize that some will be disappointed not to see this case go to trial in June,” she said in a statement. The settlement “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).

"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,” she writes.

In fact, first-mile delivery company Shyp last year did just that, classifying their drivers as employees, saying it was the best move to better control its operations.

Other same-day delivery companies are likely watching all this, but Uber’s win may not translate to their operations. The New York Times recently noted that Postmates and Doordash are struggling to keep drivers. The kinds of concessions that Uber made in these agreements, while ensuring the company will be able to tamp down costs, could still be expensive for the other same-day delivery services, most of which are dependent on venture capital funding and may not yet be profitable. 

Still, the agreement appears to go far in solidifying the approach of employing freelancers on a large scale, a key driver of the so-called “demand economy.”