US judge rejects settlement deal in Uber driver suit

 An Uber application being used as cars drive by in Washington, DC on March 25, 2015.
An Uber application being used as cars drive by in Washington, DC on March 25, 2015.PHOTO: AFP

SAN FRANCISCO (AFP) - A US judge on Thursday (Aug 18) rejected a US$100 million (S$134 million) deal cut by Uber to settle class-action litigation challenging the treatment of drivers as contractors instead of employees.

US District Court Judge Edward Chen denied a motion to approve the settlement on grounds that, overall, it is "not fair, adequate, and reasonable." Uber in April announced an agreement to settle class-action litigation from drivers in two US states.

San Francisco-based Uber agreed to pay up to US$100 million to settle the suits from drivers in California and Massachusetts. The deal enabled the global ridesharing giant to keep using independent contractors.

"The settlement, mutually agreed by both sides, was fair and reasonable," Uber said in an email response to an AFP inquiry. "We're disappointed in this decision and are taking a look at our options."

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.

A draft of the proposed settlement indicated that Uber would pay money into a compensation fund for drivers, who would continue to be considered independent contractors.

Uber could risk taking a big financial hit if it goes to trial and jurors side with drivers side against a global on-demand car ride company valued at billions of dollars.

A major legal ruling against Uber in the case could threaten the "sharing economy" business model that lets companies enlist a broad labor force while not having to provide employee benefits.

Uber co-founder Travis Kalanick praised the settlement after it was announced, saying it recognised that drivers should remain independent contractors.

The deal only applied to drivers in two states and is not binding elsewhere, but could set an important precedent for Uber.

Under the deal, Uber would have paid a guaranteed amount of US$84 million to the plaintiffs, with an additional US$16 million if the startup went public and its valuation increased beyond a certain level.

Uber had also agreed to provide drivers with more information about their individual rating and to create and fund a driver's association in both states.

Shannon Liss-Riordan, the attorney for the plaintiffs, had praised the deal as "a historic agreement, and one of the largest ever achieved on behalf of workers claiming independent contractor misclassification."

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.