SAN FRANCISCO — Uber on Thursday reached a settlement in class-action lawsuits in California and Massachusetts that will let the company continue to categorize drivers in those states as independent contractors — a landmark agreement that could have lasting implications on the long-term viability of the ride-hailing service.
Under the settlement, filed in the US District Court in the Northern District of California, Uber will pay at least $84 million to the roughly 385,000 drivers represented in the cases. The company also agreed to several concessions to appease driver concerns as well as aiding in creating new “drivers associations” in both states.
The settlement is a significant victory for Uber on the matter of its drivers’ status. By keeping them as contractors, the San Francisco-based company can keep its costs low. And while the settlement applies only to two states and is nonbinding elsewhere, the agreement and the changes that Uber is adopting may influence regulators in other places where the issue has surfaced.
“Drivers value their independence — the freedom to push a button rather than punch a clock, to use Uber and Lyft simultaneously, to drive most of the week or for just a few hours,” Travis Kalanick, chief executive of Uber, said in a company blog post announcing the settlement.
“That said, as Uber has grown — over 450,000 drivers use the app each month here in the US — we haven’t always done a good job working with drivers,” he wrote. “It’s time to change.”
Shannon Liss-Riordan, a Massachusetts lawyer for the drivers, hailed the settlement in a brief phone interview Thursday night.
“These changes are going to make a big difference in the lives of Uber drivers,” she said. “I’m most proud of the fact that Uber can no longer deactivate drivers at will; there has to be sufficient cause” to fire them.
She added, “I’m particularly proud of the provision that requires Uber to clarify with their customers that tips are not actually included” in their credit card payment, and that drivers can now place signs in their vehicles indicating that tips are not included or required but would be appreciated.
The agreement, which is subject to approval by Judge Edward M. Chen, who is presiding over the cases, says Uber must pay $84 million to the plaintiffs represented in the case. Uber will dispense an additional $16 million if the company holds an initial public offering and the average valuation of Uber increases to 1½ times that of its last financing round. In December 2015, Uber was valued at $62.5 billion, making it the most valuable private technology company in the world.
The class-action suits were originally filed in 2013 and became the biggest suits in terms of the number of drivers represented. Uber still faces litigation about driver status in other states, including lawsuits in Florida, Arizona, and Pennsylvania. In June, the California Labor Commissioner’s Office said Barbara Ann Berwick, a former driver for Uber, should have been classified as an employee, not an independent contractor. That case, which does not apply to drivers other than Berwick, is being appealed by Uber.
Uber says that as independent contractors, its drivers get flexibility. Their freelancer status also lets the company sidestep the costs of full-time employees, including paying minimum wage and the employers’ share of Social Security. But labor groups and lawyers have argued that Uber drivers should be classified as employees to receive worker protections.
The settlement’s changes are aimed at reducing points of contention for drivers. In the past, Uber has been able to boot drivers from its platform with little explanation, something that Uber said it would no longer be able to do. The company published a lengthy document detailing all the reasons a driver may be deactivated, from unsafe driving and carrying a firearm — which is prohibited — to using drugs and alcohol.
Uber said it would also provide drivers with more information about their ratings system — a measurement based upon individual scores from passengers — and how ratings were calculated. The company is exploring creating an appeals process for Uber drivers who have been deactivated because of a low rating.
Uber also agreed not to deactivate drivers who regularly decline to accept requests for rides from passengers, a practice that previously would contribute negatively to a driver’s overall standing with the company. Instead, drivers may be temporarily logged out of the app and unable to accept new requests if they are “consistently not accepting trip requests.”
“Not accepting dispatches causes delays and degrades the reliability of the system,” the company said in its newly published driver deactivation policy.
Uber refers to a trip declined by a driver as a cancellation. Each city will have a maximum cancellation rate based on the average cancellation rate of the drivers in the area, the company said.
It could eventually deactivate those who persistently exceed the rate.Travis Andersen of the Globe staff contributed to this report.