A US judge rejected Uber’s $100 million settlement with drivers in California and Massachusetts

Another roadblock.
Another roadblock.
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Uber’s proposed $100 million settlement with drivers in California and Massachusetts who claimed they should be classified as employees, instead of independent contractors, was rejected by a US judge on Thursday (Aug. 18).

US district judge Edward Chen in San Francisco rejected the ride-sharing company’s proposal because it didn’t meet the parameters of being “fundamentally fair, adequate, and reasonable.” The proposed settlement amount of $100 million was well below the $854 million worth of total potential damages calculated by the plaintiff.

Uber drivers were granted class-action status in the case by a federal judge in California last September. The class-action lawsuit affects over 350,000 independent contractors who believed they were treated by Uber as employees and should be entitled to benefits such as expensing costs like gasoline and vehicle maintenance.

“The settlement, mutually agreed by both sides, was fair and reasonable. We’re disappointed in this decision and are taking a look at our options,” an Uber spokesperson said in a statement to Quartz. The court has ruled that both parties have to meet again by Sept. 8 to discuss further action.

The suit is considered the biggest legal threat to Uber’s business model in the US. As Quartz’s Alison Griswold previously reported:

Hiring workers as contractors instead of employees is estimated to save companies as much as 30% on labor costs, because independent contractors aren’t entitled to the same safety nets as traditional employees—i.e., benefits such as health insurance and minimum wage protection. They’re also responsible for paying their own business expenses. For Uber drivers, these include gas and car maintenance, which really add up.

The $100 million settlement is big—especially for a startup that burns money like Uber does. For the first three quarters of 2015, Uber lost $1.7 billion on $1.2 billion revenue, Bloomberg reported. But forcing the company to reclassify its workers as employees would also have been expensive, and would have ended the Uber model as we know it.

Despite its stated disappointment, Uber could make out even better. As Bloomberg reported, even before the deal was rejected today, “the drivers’ lawyer said the ride-share giant may have the upper hand to walk away from further negotiations because an appeals court hinted that it might overrule a key pretrial ruling in the fight over whether drivers must be treated as employees.”