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Lyft Settles California Lawsuit Without Classifying Drivers as Employees

A settlement agreement between ride-service firm Lyft and its drivers may set a precedent for similar litigation against Uber. Both Lyft and Uber provide services in which customers use their smartphones to hail a ride from participating drivers. Neither company classifies its drivers as employees, instead calling them independent contractors. The organizations argue that the arrangement allows drivers to determine when, where and for how long they work. Drivers enjoy the flexibility to work as little or as much as they wish.

LYFT%20Nissan-001.jpgHowever, classifying drivers as independent contractors means that the drivers are responsible for the costs of doing business. Gas and vehicle maintenance, for instance, are entirely at the expense of the driver. If the drivers were employees, then Lyft would be responsible for these costs.

Refusing to classify drivers as employees has further benefits for Lyft. They aren’t responsible for withholding taxes, providing insurance or meeting minimum wage standards. Lyft drivers argued that they should be afforded the protection of regular employees, especially since they could be deactivated from the service without prior knowledge or consent. The contention caused them to file a lawsuit in California.

That lawsuit has now settled before reaching the trial phase. Lyft will still not classify drivers as employees, but it will have to accord them greater consideration and protection. Among this consideration is providing notice when a driver will be deactivated from the service. Lyft is now required to provide a reason for the deactivation, such as poor ratings from customers. Drivers now have the ability to appeal a deactivation decision and may be able to reverse it.

As part of the settlement, Lyft is required to pay its drivers $12.25 million and offer some benefits that are more commonly associated with regular employees. However, the company’s business model remains intact.

It is a settlement that is being studied with great interest by Uber, which is the subject of a similar class action lawsuit that is due in court in June. At this point, it is not known whether Uber will seek a settlement or allow the case to go to trial.