HR Management & Compliance

Independent contractor model survives Lyft settlement

Lyft, a ride-hailing service that uses independent contractors as drivers, has agreed to settle a proposed class action lawsuit in California by paying $12.25 million and giving drivers certain protections, but the settlement doesn’t call on the company to reclassify its drivers as employees.

The larger ride-hailing service Uber also is facing court action. The Uber lawsuit is certified as a class action and is scheduled for a June trial to determine whether its drivers are employees or contractors.

The settlement agreement in the Lyft suit was filed in San Francisco federal court on January 26, and a preliminary approval hearing is set for February 18. In addition to the $12.25 million, the Lyft settlement provides driver benefits such as giving drivers notice before they’re to be deactivated from the platform and paying arbitration expenses for drivers challenging deactivation or disputing compensation, according to news reports. The reports also quote Lyft general counsel Kristin Sverchek as saying that the settlement terms “preserve the flexibility of drivers to control when, where, and for how long they drive on the platform.”

Matthew A. Goodin, an attorney with Epstein Becker Green in San Francisco, said the most interesting aspect of the Lyft settlement is that “it will not preclude future litigation on the independent contractor issue.”

“Lyft clearly made a cost-benefit decision that it would rather deal with the costs of future piecemeal litigation than risk this case being certified as a class action,” Goodin said, which could have forced the company to reclassify its drivers and thus change its entire business model.

Goodin, a regular contributor to California Employment Law Letter, said he doesn’t think the settlement is particularly significant for a few reasons. First, it hasn’t been finalized so the court has not “allowed” anything yet. Second, unlike the pending Uber case, which already has been granted class certification, the Lyft case wasn’t certified as a class action and the Lyft attorney acknowledged it likely would have been difficult to get class certification because of the arbitration agreements signed by Lyft workers.

Goodin said it seems the only change Lyft is agreeing to make is to allow its drivers to challenge issues that may lead to them being deactivated and that Lyft will pay arbitration costs for employees making challenges. “Employers usually end up paying arbitration costs anyway, so this does not seem like a significant ‘win’ for the drivers,” he said.

“The takeaway for other employers with similar issues is to make sure they have valid arbitration agreements that contain a waiver of the employee’s right to pursue class actions in arbitration,” Goodin said. “This seems to have given Lyft a significant advantage in this case.”