[Wissmania]

I am not sure about the legality here, but I will say that I see this arrangement as good for both the driver and the passenger.

As a passenger I can know exactly what I'm paying ahead of time, and don't have to worry about my driver intentionally increasing the time/distance of a trip to charge me more.

As a driver, you are compensated on a time/distance basis, which means you don't have to worry as much about special requests/traffic/other issues messing with what you earn.

Uber is the one accepting the risk here, which the chance that the payout to the driver exceeds the flat rate the passenger paid because of an extra long trip.

[incongruity]

Even if it is read charitably, as you have done, that really damages Uber' claim that it's a effectively just a middleman connecting independent contractors with customers. By doing this, Uber is much more than a mere ride arranging service and, instead, they're actively reducing risk and manipulating both sides – something a mere middleman wouldn't do.

[Wissmania]

Another thing: If Uber really wanted to charge their customers more, they could just raise their rates relative to distance (which would be identical to the user since they only see the final fare and not the components of it). I think they probably just pick a long route to be conservative in the time estimate they give to the user.