Lyft settles independent contractor suit for $12 million

Lyft has agreed to pay $12.25 million to California drivers who claimed the company denied them employee benefits by misclassifying them as independent contractors.

Under the terms of the deal announced Tuesday night, the company will not reclassify its drivers as employees. That means Lyft won’t have to overhaul its business model to provide drivers with benefits such as minimum wage and reimbursement for driving expenses.

“We are pleased to have resolved this matter on terms that preserve the flexibility of drivers to control when, where and for how long they drive on the platform and enable consumers to continue benefiting from safe, affordable transportation,” Kristin Sverchek, general counsel at Lyft, wrote in an emailed statement.  “Apart from this settlement, we continue to explore a variety of ways to provide services and support for our driver community, including the potential for portable benefits, because we believe it is important to preserve the flexibility drivers cherish while also strengthening their safety net.”

The lawsuit in San Francisco federal court has been closely watched in Silicon Valley, as the outcome is likely to affect many other “sharing economy” companies that use independent contractor business models.  A similar suit brought by Uber drivers is set to proceed to trial this summer, after winning class certification last year.

Boston-based employment lawyer Shannon Liss-Riordan, who represents drivers in the suit, described the recovery as “less than we would have hoped” in an emailed statement. She estimated the $12.25 million recovery represents just under 20 percent of what drivers would have recovered had they won at trial.

“While the settlement does not achieve everything we had hoped for – namely a reclassification of the drivers as employees,” Liss-Riordan wrote, “it will result in some significant changes that will benefit the drivers.”

If the deal is approved by the court, Lyft will no longer be able to terminate drivers at will. Drivers will only be terminated for reasons laid out in the agreement, drivers at risk of termination will be given notice and a chance to improve, and drivers will have the right to challenge their termination before a neutral arbitrator.

“We believe this is a fair settlement and adequate resolution of the claims we brought, given the risks we faced in the litigation against Lyft,” Liss-Riordan wrote.

The biggest challenge was the arbitration agreement Lyft had its drivers sign, she added. The agreement precludes class-action litigation and specifies that legal claims must be heard before an arbitrator instead of in court. Such agreements, which have become increasingly common in the workplace, frequently shut down employment class actions. Without class action status, it’s rarely worth the time and money for individual plaintiffs to pursue litigation alone.

Unlike in the Lyft case, a federal judge has ruled Uber’s arbitration agreement is unenforceable. Liss-Riordan, who also represents drivers in the Uber suit, said Uber’s conduct is more egregious than that of its ride-hailing competitor.

“In the litigation we are pursuing against Uber, we hear daily complaints from drivers about how they feel Uber has mistreated them,” she wrote. “We have not been hearing so many concerns from Lyft drivers, which leads us to believe that Lyft is treating its drivers with more respect than Uber is treating its drivers.”

Photo: Lyft’s mustache logo. (Lyft)


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  • Chuck Cotton

    The Lyft drivers sold out early for peanuts. Hereon, as independent drivers, each driver functions individually as a sole proprietor and must become complaint with the CPUC (State Regulatory agency and the California Statutes and the Federal USDOT and FMSCA laws which the State of California has adopted by rule. The driver must bear all the regulatory costs plus all vehicle operational costs and a commercial public auto liability policy. After the drivers bears all these costs, he must pay Lyft its fee of 20-30% of the gross fare.
    Sadly, as an independent contractor, the drivers most always will net way below minimum wage and receive no employment benefits, thus very rapid negative turnover ratios.
    If the Uber drivers do not sell out for a settlement and become classified as employees, they will be paid “back earned income” shortfalls (gratuities, overtime, payroll taxes, and minimum wage shortfalls) insurance, fuel, vehicle maintenance and diminished value/depreciation costs, tolls, and parking.
    The Uber driver will be classified as an employee for future operations of his vehicle and his well being if he holds out. If not , then he will be on a short leash because it is not likely a profit can be earned as the business platforms are not set up for driver profitability.
    All drivers and their vehicles must become compliant with each state and its statutes to operate individually. Lyft and Uber can not license each driver as they are not a transportation carrier.

    Constitutional challenges and conflicts with state statutes will be the new focus for the taxi, limo, car service industries.