Uber clears what looked to be an IPO roadblock with $20 million settlement

A five-year legal odyssey that could have threatened the future of ride-hailing services appeared to end quietly Tuesday, clearing one concern for Uber Technologies Inc. ahead of its initial public offering.

A group of Uber drivers settled a class-action lawsuit for $20 million that will net each driver a little more than $2,000, far from the result that many thought could happen when the court proceedings began. The suit, first filed in 2013 by Boston-area lawyer Shannon Liss-Riordan, sought to reclassify Uber drivers as employees — not contractors — who would be reimbursed by Uber for necessary business expenses, such as gas and insurance.

That goal didn’t last long. The parties reached a settlement deal of $100 million in 2016, but that was overturned by an appellate court. Late last year, an appeals court found that Uber drivers would have to take up any disputes individually with the company, under its compelled-arbitration clause.

According to settlement documents filed in U.S. District Court for the Northern District of California, the 13,600 plaintiffs who did not sign arbitration agreements with Uber could receive on average of $2,206 each, after administrative costs and lawyers’ fees of $5 million. Plaintiffs’ legal fees actually totalled about $5.9 million, according to the document, which compared the latest settlement to a similar case against Lyft Inc., which netted a larger number of plaintiffs — and about $229 per class member — in a $27 million settlement that was approved by a federal judge in 2017.

“This settlement will pay approximately six times as much to drivers who are not covered by arbitration clauses as drivers would have received from the $100 million settlement that was proposed in 2016, although to a much smaller group of drivers,” Liss-Riordan said in a statement.

Also read: The lawyer looking to kill the gig economy

She added that she is still pursuing many cases against so-called gig-economy companies, and others that “misclassify workers as independent contractors, in order to save on labor costs and shift the risks and expenses of operating a business to their low-wage workers.”

“We continue to have cases pending against Amazon AMZN, +0.15% , GrubHub GRUB, +2.25% , Lyft LYFT, +0.00% , DoorDash, Postmates, Handy, and many others that are exploiting their workers through this business model,” she said.

While Liss-Riordan continues her quest, the independent-contractor model for ride-sharing appears to be a victor. Both Uber and Lyft are currently preparing for their much-anticipated, multibillion-dollar initial public offerings, expected later this year. As part of their offerings, both companies are considering giving some of their early and long-term drivers options to buy shares in the IPO.

Read also: Meet the OG Uber and Lyft drivers who could cash in on IPOs

These mega class-action suits had cast big shadows over both ride-sharing companies, with the possible threat to their core business model of hiring contractors as drivers. Uber wisely settled the last remaining portion of the litigation, as it is preparing its legal documents for investors, in the hopes of reducing some of the cases in the worrisome litigation section of its upcoming prospectus. Lyft’s “legal proceedings” section of its prospectus is five pages long, including almost two pages on several unresolved independent-contractor classification lawsuits, including one filed in Massachusetts Superior Court by Liss-Riordan. Uber has not filed its prospectus yet.

In a statement, a spokesman said, “Uber has changed a lot since 2013. . . We’re pleased to reach a settlement on this matter and we’ll continue working hard to improve the quality, security and dignity of independent work.”

While the ride-hailing app companies appear to have dodged the contractor-versus-employee issue for now, it’s an important one that needs some resolution. Liss-Riordan and other lawyers who have filed cases against these companies make valid points on the whole gig-economy business model, designed to make money without make big investments in assets or many employees. But for now, the contractor business model looks relatively intact.

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