Uber, the San Francisco startup that offers a popular international ride-hailing app, will continue to use independent contractors as drivers after settling class-action lawsuits arguing that the drivers were actually employees rather than independent contractors. The lawsuits for drivers in California and Massachusetts were highly publicized disputes in the ongoing battle between employers and workers over their labor rights in the new economy.
The Uber wage lawsuits were one of the higher profile disputes as workers labeled independent contractors by startups argue they are entitled to additional compensation under state and federal wage & hour laws due to their functional status as employees. Although the Department of Labor was not involved in the Uber lawsuits, the DOL has been targeting misclassification of workers, issuing guidance last summer concerning the appropriate standards for determining whether an independent contractor is instead an employee. The Fair Labor Standards Act (FLSA) is the federal law that governs these types of disputes.
A number of the “sharing economy” and “on demand” startups have faced employment lawsuits. Homejoy, an on demand home cleaning service, went out of business when it couldn’t raise additional capital in part due to a misclassification lawsuit. LinkedIn also saw workers bring a lawsuit for unpaid overtime through the Labor Department which it settled for roughly $6 million.
Wage lawsuits aren’t the only legal and regulatory problems that Uber has faced. It also has faced limits to its service in certain jurisdictions due to taxi cab and driver regulations. The settlement in these two cases provides for $84 million to be paid to the drivers and another $16 million if the company sells stock in an IPO.