Uber recently reached a settlement with its drivers in California and Massachusetts in two lawsuits that could have derailed the company’s entire business model. While both sides gave important concessions in the settlement, Uber maintains the ability to classify its drivers as independent contractors in both states, a win that will prevent the company’s costs from skyrocketing.

If approved by a district court judge, the settlement will resolve two class action lawsuits against Uber that originated in California and Massachusetts. Drivers will remain independent contractors and Uber has agreed to pay the plaintiffs $84 million with an additional $16 million contingent upon the company going public and increasing significantly in value.

If Uber drivers were granted employee status, Uber would have been required to pay minimum wage, reimburse expenses, provide health benefits, and pay the employer portion of social security. A report from the National Employment Law Project estimates that classifying workers as contractors can save companies as much as 30 percent on payroll and related taxes and can significantly reduce the amount they are paid.

The settlement will also require Uber to change its driver deactivation policies. The issued a deactivation policy explaining what factors can lead to deactivation and will provide additional information to drivers in Massachusetts and California about their rating and how it compares to other drivers. With the settlement, Uber agreed to create and help fund a drivers association that will meet quarterly and function somewhat like a union. Drivers will also be allowed to put up signs asking riders for tips.

However, the court’s approval of the settlement is not guaranteed. In fact, a similar settlement involving the company’s competitor, Lyft, was recently rejected by a judge. That settlement was rejected because the proposed amount, $12.25 million, was based on an outdated expense reimbursement estimate. The judge argued that the settlement would need to increase significantly to meet estimates from more recent data. Underlying that case are similar questions: should drivers be considered employees and are they entitled to reimbursements?

Overall, the recent settlement appears to be a large victory for Uber. The company was valued at $62.5 billion in December, making the $100 million settlement relatively manageable in the context of the company’s size. Uber will also continue to keep its costs remarkably low as it continues to classify its drivers as independent contractors. Drivers will get some important concessions from the company and Uber is openly acknowledging that it needs to evolve in the way it manages its drivers as the company grows.

In a blog post after the settlement was reached, Uber CEO and Co-Founder Travis Kalanick wrote,

Six years ago when Uber first started in San Francisco, it was easy to communicate with the handful of drivers using the app. Austin Geidt, who ran marketing, called each one regularly to get their feedback and make sure things were working well. It was clear from those early conversations that drivers really valued the freedom Uber offered.

Kalanick also notes that the company now has over 450,000 drivers using the app each month. Given the dramatic increase in the company’s size, it is seeking to improve the way it receives and responds to feedback from drivers while clarifying its deactivation policies.

Despite the settlement, many questions remain about worker classification for so-called “gig economy” jobs. The settlement resolves a dispute between drivers in the two states, but it doesn’t answer the question altogether. Moreover, a settlement will not leave a precedent in the way a decision from a federal judge would. Regulators also retain the ability to change classification standards, which would have a dramatic impact on these businesses.

Kevin Rizzo

Kevin Rizzo is the Crime in America Editor at Law Street Media. An Ohio Native, the George Washington University graduate is a founding member of the company. Contact Kevin at krizzo@LawStreetMedia.com.

The post Uber Agrees to $100 Million Settlement With Drivers appeared first on Law Street.

A 10-month-long contract dispute has finally come to a head as 36,000 Verizon employees went on strike Wednesday. The strike began after Verizon and the two labor unions that represent Verizon’s wireline service workers could not reach an agreement before the two unions’ proposed deadline of 6 am, Wednesday. On Thursday, a large group of low-wage employees in other industries walked out of work in an effort to increase the minimum wage to $15 per hour.

Both the strike and the fight for $15 protest come after New York and California passed laws to increase their minimum wage laws. Some point to this as a pattern, in which low-wage workers are finally trying to make up for years of stagnant pay and economic hardship. For others, this is merely another blip in the perennial struggle between labor and business. Either way, this is one of the largest strikes in recent history and has quickly become a political issue.

What do both sides want?

The primary point of disagreement between Verizon and its workers is the company’s desire to have more flexibility with its workforce and the workers’ hope for sustained job security. Verizon argues that the company needs to adjust to meet the changing economy’s demands. It claims that it has offered reasonable solutions to prevent benefit costs from increasing dramatically and has offered significant pay increases. Meanwhile, workers argue that it is unfair for their company to force them to relocate and travel long distances for work, noting that if they refuse to do so they will likely lose their jobs.

An interesting aspect of the strike is that it seems to have less to do with wages specifically. Verizon has offered a 6.5 percent pay increase and most of the two unions’ complaints have not focused on wages. Verizon frames the negotiations as an effort to allow the company to get with the times, while workers argue that the contract should focus on protecting decent paying middle-class jobs.

Some Context

Underlying the negotiations is the changing importance of the wireline side of Verizon’s business. As Verizon shifts its focus to its rapidly expanding wireless service, its wireline service–which includes television, phone, and internet–has actually decreased. The wireless side of the company, which is largely ununionized, has seen its profits soar while the more costly wireline service has contracted slightly as landline phone and television service becomes less popular. In light of this change, the company wants to cut costs on the less profitable component of its business by stretching its workers more.

While the workers are right when they say Verizon’s profits have soared in recent years, the bulk of that increase came from the wireless business. Over the last several years, Verizon has made a clear effort to transition much of its business to wireless. In 2013, Verizon Communications bought Vodaphone out of its 45 percent stake in Verizon Wireless, giving the company full control over the wireless side of the business. In February 2015, Verizon sold a large chunk of its landline service to Frontier Communications. The deal, which included most of the company’s wireline infrastructure in the western part of the United States, allowed Verizon to buy additional wireless spectrum, further shifting its business in that direction. Aside from its recent announcement to bring FIOS infrastructure to Boston, Massachusetts, Verizon has been relatively uninterested in expanding its wireline service.

So Who’s Right?

Naturally, this question is the most difficult to answer. But when you take a closer look at the dynamics at play it tells us a lot about current labor dynamics in the United States. Can Verizon’s wireline business continue to be a source of good, middle-class jobs as it has been for decades, given that the company wants to shift toward wireless? More to the point, what happens to workers when technological and economic shifts make certain businesses less profitable? Unfortunately, these are questions that we probably won’t have a consensus on anytime soon, if ever.

According to a press release from Verizon, the workers on strike make an average of $130,000 per year, including salary and benefits, which indicates that wages aren’t the entire problem. It also doesn’t seem like the workers went on strike because their wages aren’t high enough. Instead, they fear that Verizon is trying to make it easier to ship jobs overseas and continue its shift away from wireline services. Although there is a significant market for Verizon FIOS, its fiber-optic internet service, its landline telephone, and video services are not as profitable as they have been in recent decades.

The exact details behind the negotiations are hard to pin down, but the dispute may end up taking some time to resolve. In the meantime, Verizon has been training non-union workers to fill in for the strikers. But even if the dispute is settled soon, it seems likely that the underlying debate will continue for quite some time. As Bernie Sanders gains national attention on a campaign to fight for workers and the push to increase the minimum wage maintains the spotlight, developed economies will have to answer some tough questions about the future of middle-class jobs in a time of rapid technological change.

Kevin Rizzo

Kevin Rizzo is the Crime in America Editor at Law Street Media. An Ohio Native, the George Washington University graduate is a founding member of the company. Contact Kevin at krizzo@LawStreetMedia.com.

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