$12M Lyft Settlement: Company Refuses to Classify Drivers as Employees

In late January 2016, Lyft, a ride-hailing service out of California, agreed to pay a $12.25 million settlement in order to provide extra job security to members of a proposed class including both current and former drivers. The drivers filed suit against Lyft in California federal court. One of the more interesting terms of the settlement agreement for many is Lyft’s insistence that drivers will still NOT be classified as employees.

The suit filed against Lyft is just one of several that popular “ride” services are dealing with in both state and federal courts. Another popular ride service that is handling similar suits is Uber Technologies Inc. The numerous suits in the last few years against these types of ride providing companies seek a clearer delineation between employees and independent contractors (which is the current classification of drivers at such companies). In the suit recently settled against Lyft out of California federal court, the company made a few additional concessions that were included in the proposed settlement:

• Lyft conceded the right to terminate drivers at will enabling drivers to “turn down” rides without fear that they will lose their ability to drive for the company.
• Lyft agreed to create a “favorite driver” option for riders to use to designate their favorite drivers – providing drivers with the opportunity for additional benefits.
• Lyft conceded paying costs to arbitrate driver grievances.
• Lyft conceded the implementation of a prearbitration process. 
• Lyft conceded the provision of drivers with additional “rider” info (passenger ratings, etc.)

Lyft representation announced that the company was pleased with the resolution of the matter and that opportunity the settlement terms presented to preserve the flexibility of the drivers that is necessary for them to control their own driving schedule on the platform while still providing consumers with affordable, safe transportation as originally intended. The company designed their platform as a symbiotic relationship between driver and rider. The driver controls when they drive, where they drive and how far they drive and consumers get home safely.

The original plaintiff, driver Patrick Cotter, filed suit against Lyft in September 2013. He alleged that the company’s classification of drivers as independent contractors was inappropriate as they were treated like employees. He also alleged that the company’s policy to “skim” 20% of drivers’ tips as an “administrative fee” was in violation of California labor law. He cited company required inspections of drivers’ vehicles (personal cars) and insurance policies, the company’s right to fire at will, mandatory policies and training, etc. as actions more suited to the role of an “employee” according to California labor law and that drivers were misclassified as independent contractors. The suit was originally proposed as a nationwide class action, but at a later date was limited to California drivers.

The counsel for the plaintiffs saw the terms of the proposed settlement as positive even if they did not attain all that they hoped for with the legal proceedings. Lyft did not agree to reclassify drivers as employees as other “sharing economy” services have recently (i.e. Shyp, Instacart, etc.), but they did agree to make changes that will provide significant benefits to their drivers.

If you would like additional information about misclassification of employees as independent contractors, we would love to discuss it with you. Contact one of the experienced southern California employment law attorneys at Blumenthal, Nordrehaug & Bhowmik today.