Why Everyone Loses With Uber's $100 Million Payout

Why Everyone Loses With Uber's $100 Million Payout
Image credit: Lucy Nicholson — Reuters

You call this a solution? Late last week, Uber reached a $100 million deal with its drivers to end two high stakes class action cases. Despite the eye-popping figure, the proposed settlement is a bad outcome for workers, companies, and consumers.

The lawsuits, in case you’re unfamiliar, turn on whether Uber broke the law in California and Massachusetts by treating its drivers as independent contractors instead of employees. The cases are among the most visible of numerous lawsuits filed against “gig economy” companies like home cleaning company Handy, and Uber’s ride-hailing competitor, Lyft, over how they classify employees.

Last week’s Uber settlement, on its face, sounds appealing and both sides are talking up the benefits. Uber likes the deal because it affirms its contractor-based business model, while a lawyer for the drivers called it a “historic” deal that will deliver cash and better working conditions.

But in reality no one wins. Uber just paid through the nose to buy labor peace in California and Massachusetts, and it may have to cut similar deals in other states before long. Meanwhile, as the Wall Street Journal observes, the $100 million Uber settlement provides a template for plaintiffs’ lawyers to go after a slew of other gig economy companies.

Oh, and speaking of lawyers, note that the law firm for the drivers stands to make up to $25 million on the Uber cases alone. This is per the settlement documents, which describe a 25 percent commission after a judge approves the deal.

While such a take is not unusual for class action cases, it’s a bit rich given that Shannon Liss-Riordan, the lawyer who is the face of the fight for gig economy workers, has long framed these cases as a crusade for employee rights. Now, she is folding her cards in return for a fat fee and promises from Uber that it will make some minor changes to its driver policy.

These changes, which include more transparency and the possibility of tips, are better than nothing, but they fail to provide basic benefits -- such as workers compensation and Social Security payments -- that are rights for any employee. In an email to Fortune, Liss-Riordan explained that the drivers could not have obtained such benefits in court, and that they can still ask state agencies to reclassify them as employees. (She has elsewhere pointed to a recent court ruling to suggest the drivers risked getting nothing if they didn’t settle).

Whatever the explanation, the fact remains that drivers gain relatively little (it’s unlikely the more than 350,000 eligible drivers will get more than $200 each). Meanwhile, Uber and other companies can look forward to getting soaked for more expensive legal settlements, the cost of which will get passed on to consumers. A better alternative would be for political leaders, including presidential candidates Hillary Clinton and Donald Trump, to suggest policy options that would provide a social safety net for the growing ranks of gig economy workers.

In the meantime, U.S. District Judge Edward Chen should refuse to approve the settlement until it provides real benefits and lower legal fees.

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