(MENAFN- AFP) Uber has agreed to settle class-action litigation from drivers in two US states, in an agreement enabling the global ridesharing giant to keep using independent contractors.
San Francisco-based Uber agreed to pay up to $100 million to settle the suits from drivers in California and Massachusetts, according to a statement late Thursday.
The lawsuits challenged a pillar of the business model of the pioneer of the so-called gig economy -- relying on workers with no set schedule and only a loose affiliation with the ridesharing giant.
Uber co-founder and chief executive Travis Kalanik said the deal is positive for both sides.
"In the US almost 90 percent say they choose Uber because they want to be their own boss," he said in a blog post announcing the settlement.
"That's why we are so pleased that this settlement recognizes that drivers should remain as independent contractors, not employees... 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."
The deal only applies to drivers in two states and is not binding elsewhere, but could set an important precedent for Uber, which for many represents the "sharing economy" or "gig economy," which relies heavily on independent contractors.
Under the deal, Uber will pay a guaranteed amount of $84 million to the plaintiffs, with an additional $16 million if Uber goes public and its valuation increases beyond a certain level.
Uber also agreed to provide drivers with more information about their individual rating and will create and fund a driver's association in both states.
- 'Historic' agreement -
Shannon Liss-Riordan, the attorney for plaintiffs, said the deal was "a historic agreement, and one of the largest ever achieved on behalf of workers claiming independent contractor misclassification."
She said in a statement the settlement "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."
According to Liss-Riordan, drivers who have the most miles logged are likely to receive some $8,000 or more under the settlement.
Liss-Riordan said that an important element in the agreement covered how Uber dismisses or "deactivates" drivers.
"Uber will no longer be able to deactivate drivers at will," she said in an email summarizing the settlement.
"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."
The deal also clarifies that tips are not included in Uber's fares, and allows drivers to install signs in their cars stating that "tips are not included, they are not required, but they would be appreciated."
Significantly, the attorney said the settlement does not preclude drivers in other jurisdictions from challenging Uber's model of using contractors.
"The case is being settled -- not decided," she said.
"No court has decided here whether Uber drivers are employees or independent contractors and that debate will not end here."
She added that the settlement "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."
By settling, both sides avert the risks of a potentially calamitous ruling in a trial, which would likely face appeals regardless of the verdict.
Uber has grown over the past few years to over 400 cities around the world, drawing complaints in many areas from regulators and established taxi operators on alleged unfair competition and inadequate safeguards, for example.
It has become one of the world's most valuable venture-backed startups, with investments that value the group at more than $50 billion.
Uber is known as one of the leading "unicorns" or startups hitting valuations over $1 billion without hitting the stock markets.
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