A federal judge has rejected Uber's proposed $100 million settlement of a class action lawsuit that was filed against the ride-sharing company by its drivers.
With the rejection, the case might go through a high-profile jury trial, unless another settlement is reached with the drivers.
U.S. District Court Judge Edward Chen in San Francisco ruled that the settlement, which would have paid out $100 million to about 385,000 drivers from Massachusetts and California, was an unreasonable, inadequate and unfair offer.
Under the terms of the settlement, which was put forward in April, Uber would have been allowed to go on with its set-up of classifying its drivers as independent contractors, which would allow the company to avoid the expenses of classifying them as employees with benefits such as health insurance, paid sick days and overtime and Social Security.
The proposal also included the provision that Uber will no longer be allowed to terminate drivers at will, with a panel to be created to allow drivers to appeal if they feel they have been wrongfully terminated. Uber would also have to make it clear to customers that tips are not included in the fares for Uber rides.
Drivers have contested the $100 million settlement, as the amount would not be sufficient when divided among the 385,000 individuals that have joined the class action lawsuit. The amount was also much lower than what the drivers were seeking, as the plaintiffs calculated potential damages of more than $850 million.
In addition, as Chen noted, $16 million of the proposed amount would only have been paid to the drivers if the valuation of Uber increased by a certain percentage within a year of an IPO. Chen did not consider the amount as part of the settlement because Uber could not prove that the valuation increase was likely, with the judge then stating that the remaining $84 million was a substantial discount to the full value being claimed by the drivers.
If Uber would end up being forced to classify drivers as employees, the ride-sharing company's business model will be placed at risk. Uber has enjoyed dramatic growth over the past six years by providing a smartphone app that connects riders with drivers, bypassing the regulations enforced in public transportation methods such as taxi cabs. If the drivers would be classified as employees, Uber would incur many additional expenses that would very much hurt its bottom line.
Jill Hazelbaker, a spokeswoman for Uber, revealed the company's disappointment on the rejected settlement, as it believes that it was reasonable and fair to both sides. The company will now be taking a look at its options moving forward with the class action lawsuit.
