Published: April 28, 2016
Uber has reached a settlement with its drivers in California and Massachusetts over whether they should be classified as contractors or employees. Known as a popular transportation company focused around an app that seamlessly connects riders with drivers, the company has come under increased scrutiny due to its unconventional structure that allows it to be exempt from many of the laws and regulations that competing taxi companies are subject to. Some cities have enacted regulations for Uber to follow, such as New York City increasing the tax on the company’s rides, yet it still remains to be seen if these actions are effective in the long term. Other issues based around the ride sharing company have come to light whose results are yet to be determined.
The labor dispute over how to classify its drivers is a major debate for the company because of the changes that would occur if the company’s drivers were classified as employees. As an app, Uber’s function is to connect drivers and riders, where the drivers are classified as contractors. If the drivers were to be classified as employees, Uber would then have to pay additional taxes, health benefits and other amenities available under the classification. This would greatly impact the profit margins that the car sharing service has enjoyed up to this point and would raise the prices of the service. With its competitive prices separating the company from others in the market, this additional factor would be less than ideal for Uber.
In the settlement, the car-sharing service retained the ability to classify its drivers as contractors. However, despite Uber winning the main issue of the case, it has also agreed to pay up to $100 million in compensation to the drivers. This case was closely watched due to Uber’s business model bringing up key questions, such as worker classification and how an on-demand economy should treat workers more broadly. Despite the case being decided upon in favor of Uber, the distinctions for its workers are still vague and will continue to be debated in the future.
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