Here’s Why Uber Agreed to Pay $20 Million on the Same Day It Was Sued by the FTC
Ride-hailing unicorn promises it won’t mislead drivers in future
PHOTO CREDIT: Getty Images
In a win for greater transparency and accountability in the gig economy, the
Federal Trade Commission announced today that Uber has agreed to pay $20 million to settle the agency's lawsuit alleging that the company misled its drivers. The company's response may set a record for rapid response to governmental action: Uber and the FTC agreed to the $20 million settlement on the same day the FTC filed its complaint.
The reason for the quick settlement may be the damning list of inaccuracies the FTC was able to find in the ride-hailing app's advertisements seeking drivers. For example, in major American cities, Uber's advertisements promised potential drivers they could make a decent hourly wage, ranging from "up to" $16 an hour in Atlanta to $29 an hour in San Francisco. But in nearly all of these cities, the FTC found, fewer than 30 percent of drivers actually earned the advertised rate. In Boston, Minneapolis, and Philadelphia, fewer than 10 percent of drivers made the advertised rate.
Own a car for $20 a day?
The FTC also blasted Uber for its vehicle leasing and lease-to-own programs which promise drivers they can own a car for as little as $20 a day or $140 a week, or lease one for as little as $17 a day or $119 a week--sums which are deducted from drivers' earnings before they are paid. According to the complaint, the "vehicle solutions" program directs drivers to three specific auto companies to get their cars. When drivers who've joined these programs send questions or complaints to Uber about them, the company typically responds with a boilerplate note reading: "Please contact your lender to discuss your payments, accruals, or amounts owed as Uber does not keep track of this information."
Apparently not. In fact, the FTC found, despite the advertised prices, the average weekly payment for drivers who leased cars was more than $200, and more than $160 for those in the lease-to-own program.
How much of a difference will the $20 million settlement make to Uber's financial outlook? Not much. The company is estimated to have had net revenues of about $5.5 billion last year and losses of more than $3 billion, numbers that make the FTC settlement look trivial. Of course, that money could conceivably make a more meaningful difference to the 160,000 drivers the company says it has in the United States, depending how that payment is made. (It would be $125 each if divided evenly among all the drivers, not counting fees or other costs for the distribution.)
No misleading ads in future
In settling the lawsuit, Uber did not admit any past wrongdoing but it did agree to the FTC's order barring it from "making false, misleading, or unsubstantiated representations" about driver earnings or vehicle costs in the future. "We're pleased to have reached an agreement with the FTC," Uber spokesperson Matt Kallman, told the Chicago Tribune in an emailed statement. "We've made many improvements to the driver experience over the last year and will continue to focus on ensuring that Uber is the best option for anyone looking to earn money on their own schedule."
Needless to say, settling this one suit is very far from solving Uber's legal problems. The company has been sued more than 50 times by drivers, passengers, and governments all over the world, most often over the question of whether drivers can legally be classified as contractors, or should be treated as employees instead (which would give them more rights).
Whether all these lawsuits will eventually force the company to change its business model, or even put it out of business altogether is far from clear. Besides if, as analysts estimate, Uber really did lose $3 billion last year, it has much bigger problems to solve than these.