Uber agrees to pay up to $135 million to settle major lawsuit over drivers' employment status

File photo of a man checking a vehicle at the first of Uber's Work On Demand recruitment events.
File photo of a man checking a vehicle at the first of Uber's Work On Demand recruitment events. PHOTO: AFP

SAN FRANCISCO (Reuters) - Ride service Uber has agreed to pay up to US$100 million (S$135 million) to settle a class-action lawsuit over whether its California drivers are employees or independent contractors, resolving a major challenge to its business model by allowing it to keep its California and Massachusetts drivers as independent contractors..

The settlement maintains Uber drivers as independent contractors, even though the lawsuit had alleged that Uber drivers are employees entitled to reimbursement of expenses.

Out of the US$100 million proposed payment, US$84 million is guaranteed to drivers.

Uber could also pay an additional $16 million, but only if the company's valuation grows by 150 per cent above its December 2015 financing round within a year after any initial public offering.

Uber was valued at US$62.5 billion in that December funding round.

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.

Uber is "pleased" that the deal "recognises that drivers should remain as independent contractors, not employees", Mr Kalanick said in the post.

The Uber deal must be approved by US District Judge Edward Chen in San Francisco.

The case against Uber had been closely watched in Silicon Valley, as other companies in the on-demand tech economy share Uber's reliance on independent contractors.

The case had been scheduled for a trial in San Francisco federal court in June.

"We realize that some will be disappointed not to see this case go to trial," said Ms Shannon Liss-Riordan, an attorney for drivers. However, Ms Liss-Riordan said the plaintiff drivers faced significant risks of losing if the case moved forward.

Nothing about the settlement prevents a future court, or US labour authorities, from deeming Uber drivers as employees, she said in a statement.