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The on-demand ride-sharing company Uber Technologies Inc. reached a preliminary $100 million agreement with drivers in two states that allowed them to remain contract workers and solicit tips from riders.

But what does the agreement mean for the on-demand business sector, which has become known as the gig economy?

The April 21 class action settlement would resolve, at least for now, the biggest threat to Uber's business model by settling with the 240,000 California drivers, who filed a lawsuit to be treated more like traditional employees. The settlement included about 145,000 Massachusetts drivers, whose similar class action was combined with the California case, the trial for which was scheduled to start June 20 in a San Francisco federal court. Under the settlement, which must be approved by a federal court to take effect, about 25 percent of the total amount would cover attorneys’ fees.

The proposed settlement was similar to a case involving an Uber competitor, Lyft Inc., which in January agreed to pay more than $12 million to settle claims of California drivers. Like Uber, the drivers for Lyft   would continue to operate as independent contractors. However, the Lyft deal was rejected by a court, which said the payout would shortchange 150,000 drivers. Negotiations continue on an appropriate settlement.

The Uber case, meanwhile, may  have broad implications for companies in the on-demand economy, especially with regard to the treatment of drivers, who sought to be classified as employees and not independent contractors (O'Connor v. Uber Technologies Inc., N.D. Cal., No. 13-cv-03826, settlement agreement 4/21/16).

The proposed settlement would leave Uber’s business model intact and the company would not have to pay drivers minimum wages and benefits accorded to employees. For employers, independent contractors are not covered by the Fair Labor Standards Act and its minimum wage and overtime provisions. Independent contractors also are responsible for paying Social Security taxes on their own, without the taxes being withheld from their wages by employers.

Many drivers said they were surprised and frustrated by the settlement agreement. A survey by SherpaShare Blog, a support platform for on-demand workers in several U.S. regions, had these results:

*64 percent said the settlement result was not what they expected.

*69 percent viewed themselves as independent contractors.

*13 percent said they were “satisfied” or “very satisfied” with the result of the settlement.

In short, SherpaShare said the comments expressed “frustration” at the settlement as “not enough,” with the result not doing anything “substantial” for the drivers.

With a settlement rather than a verdict, the issue of employee vs. independent contractor classification essentially remains unresolved. Until then, drivers likely would continue to press their case to seek employee status.

Shannon Liss-Riordan, a Boston labor lawyer who was among the attorneys representing the drivers in the case, told SherpaShare Blog before the agreement that the goal of the lawsuit was to obtain what employees would receive under the wage laws, including reimbursement for mileage under California law and gratuities that the drivers claimed Uber had not shared.

“My hope is that these cases have made companies think much harder about how they treat their workers,” Liss-Riordan said. “I have been very heartened to see a number of companies make the decision to go the other way and classify their workers as employees and strive to be good employers.  By doing this, they not only avoid years of costly legal battles but will have won themselves a more dedicated and committed workforce, which is good for business in the long run.”

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