Like it or not, Uber, the ride-sharing service has revolutionized the taxi industry. By allowing commuters to use a smartphone app to call for attractively priced rides from non-licensed drivers and non-medallion cars, taxis and limousines have had to face a new and dominant source of competition. Many taxi companies have in fact signed up with Uber, under the strategy that if you can't beat them, join them.
However, the experiment may be working better for customers than it is for drivers. The situation is complicated by the freelance labor model Uber uses to avoid hiring employees. And the situation got even more complicated recently when a federal judge rejected two class action suits, in Massachusetts and California, that would have resulted in a $100 million settlement.
The judge ordered both sides to go back to negotiations after ruling that the settlement was unreasonable, inaccurate and unfair to drivers. The two sides are to report progress to the judge on September 15.
The ruling is enormously important not only to Uber, but also to many other companies that hire freelancers to clean houses, drive cars and perform many other tasks. At the heart of the Uber dispute is the demand by 385,000 past and present drivers to be treated as employees rather than as contractors.
As employees, the drivers would receive certain benefits, such as reimbursement for gasoline, health care and other expenses, as well as protection from sudden termination when Uber cuts off a driver's access to its app.
Under the rejected settlement, Uber would have curbed some of its most unfair practices and paid out at least $84 million to drivers. That amount would rise to $100,000 million if Uber became a public company. The company would not have to change its employment model, and would save the billions in costs for employee auto expenses and health benefits.
Many drivers filed objections to the proposed settlement, protesting that it didn't grant them a trial by jury on their employment status. A law professor opined that the settlement amount was but a fraction of what the drivers could receive from a jury.
The court ruling was tied to a California law in which the drivers can go after Uber for labor code violations and split the claims with the state. The settlement would have allowed $1 million for these claims, but the drivers' lawyers estimated the value of the claims at a whopping $1 billion.
The court decision carries risks to drivers, who would lose the right for pursuing a class action suit if an appellate court found that Uber can enforce a mandatory arbitration clause. Only about 8,000 individual suits would survive such a decision.
If the drivers win their suit, companies that would have to reclassify contractors as employees might face 20 percent or higher increases in labor costs, forcing them to raise prices. Also, they would have to explain their termination decisions and issue warnings before getting rid of these workers.