Uber Reaches a Tipping Point With Its Drivers

Under a proposed class-action settlement, Uber would clarify its policy regarding tipping and add protections for drivers, ENLARGE
Under a proposed class-action settlement, Uber would clarify its policy regarding tipping and add protections for drivers, Photo: Agence France-Presse/Getty Images

Uber Technologies Inc. transformed the taxi industry by coming up with a seamless way to match customers with its army of drivers.

Using the company’s ride-hailing app on their smartphone, Uber riders summon a car that arrives within minutes and whisks them to their destination. Because the fare is automatically charged to their Uber account, customers alight from the car without having to fumble with payments and gratuities—a smooth, cashless experience compared with a typical taxi ride.

But that process may change if a San Francisco judge approves terms of a legal agreement that would, among other things, allow Uber drivers to solicit tips.

A proposed $ 100 million class-action settlement announced on Thursday would permit Uber to continue classifying drivers as contractors rather than employees—a crucial win for the company. But Uber would now clarify its policy regarding tipping and add protections for drivers, such as warnings when they are at risk of being jettisoned from Uber’s platform. It would also soften its stance toward deactivating drivers who regularly decline trips.

Gratuities have been a sticking point between the $ 62.5 billion startup and its drivers, whose fares are determined by a base rate that is grossed up to reflect duration and distance of rides. Uber takes a cut of the fares, usually 20%-25%.

The new agreement would allow Uber drivers to post discreet signs in their cars stating that tips aren’t included in the fare, a small but significant step that could rankle some of the company’s established customers.

Ben Huh, the former chief executive of Web content company the Cheezburger Network, said he rarely carries cash and would prefer the company add a flat service fee for drivers, rather than leaving users to decide during each ride whether to tip and, if so, by how much.

Tipping “will hurt the experience of using Uber,” Mr. Huh, 38, said on Friday. “It will feel like a cab service. The whole beauty of riding in an Uber is you get in and you get out and you don’t have to deal with the hassle of physical currency.”

I’m working at rock bottom now, and not having tips is part of the problem.

—Ben Hart, an Uber driver in the Daytona Beach, Fla., area

Tipping has been the norm for Uber’s main U.S. competitor, Lyft Inc., whose ride-hailing app allows riders to send drivers gratuities electronically via a prompt after the ride concludes. The company says 70% of riders have left tips for drivers, with $ 85 million in gratuities paid to drivers so far. Passengers in Nashville, Austin and Seattle tip the most, according to Lyft.

Shannon Liss-Riordan, a lawyer representing Uber drivers in the two class-action lawsuits settled on Thursday, said she was thrilled with the company’s clarified position on tipping. “This could significantly impact the drivers’ earnings,” she said.

Uber has significantly lowered prices in some markets recently, leading some drivers to complain they are earning less than they did a year ago. The company has said lower prices will mean more business for drivers.

“I’m working at rock bottom now, and not having tips is part of the problem,” said Ben Hart, 60, who has been driving for Uber for more than a year in the Daytona Beach, Fla., area. He estimates 2% of his customers leave a gratuity, a percentage he hopes will now increase.

Uber’s policy change won’t necessarily guarantee customers will alter their behavior, especially if they are used to not leaving a tip, Veena Dubal, a professor at University of California Hastings College of the Law, said. “There has to be consumer recognition that tips can now be part of this culture.”

It will feel like a cab service. The whole beauty of riding in an Uber is you get in and you get out and you don’t have to deal with the hassle of physical currency.

—Ben Huh, an Uber user commenting on tipping the ride-hailing company’s drivers

Uber allows passengers to rate drivers, and drivers rate their passengers. Uber user Mr. Huh said he isn’t worried his ratings might fall if he fails to leave a gratuity. But he wonders whether driver ratings would suffer if customers feel they seek tips too aggressively.

Uber on Friday said it doesn’t plan to build tipping into its app, so riders who want to tip will have to do so in cash. The lack of an electronic payment option for gratuities means drivers could earn less from business travelers, who tend to tip well but require receipts for expenses, said Ms. Dubal, who has interviewed many taxi drivers for her research on the sharing economy.

“It’s always been a great mystery” that the service doesn’t include such a feature on the app, said Mr. Hart, the Daytona Beach Uber driver. “I’ve had a lot of customers who ask about that.”

Jake Khatib, 36, an Uber driver in Chicago said many customers have told him they assume tipping is built into the fare, and few of his riders carry cash. Some riders do tip, he said, including one who gave him $ 70. “He was drunk.”

Mr. Khatib said he doesn’t plan to post the sign in his car and risk annoying passengers. “Riders, they already look down at drivers. They patronize you. I try to avoid any confrontation.”

Write to Rachel Silverman at [email protected] and Lauren Weber at [email protected]


WSJ.com: US Business

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