The taxi service Uber will pay up to $100 million to settle a class action lawsuit which resolves a challenge to its business model by allowing its California and Massachusetts drivers as independent contractors.
The Lawsuit had claimed that the drivers are employees and thus hold right entitled to reimbursement of expenses. The case was closely watched in Silicon Valley, and the next trial was scheduled in San Francisco federal court in June.
However Shannon Liss-Riordan, an attorney for drivers said that plaintiff drivers had significant risks of losing if the case moved forward because a federal appeals court had recently agreed to review an order allowing Uber drivers to sue as a group.
Out of the $100 million proposed payment, $84 million is guaranteed to drivers. Uber could also pay an additional $16 million, but only if the company’s valuation grows by 150 percent above its December 2015 after any initial public offering and it valued $62.5 billion in that December.
Uber agreed to some changes in its business practices, including the institution of a policy for deactivation of drivers, chief executive Travis Kalanick said in a blog post about the settlement. Some drivers had long complained that Uber arbitrarily terminated users from its platform.
Liss-Riordan also mentioned that these groups are not official but they come together in order to bring their problems to management’s attention.
Over 450,000 U.S. drivers currently use the app each month, Kalanick said in the blog post.
The Uber deal must be approved by U.S. District Judge Edward Chen in San Francisco.