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Lyft, a California-based company where customers can request rides through their smartphone app, has just recently settled a lawsuit that was filed against the company in 2013.  Lyft agreed on January 26, 2016, to pay $12.25 million to settle this worker misclassification lawsuit.  The lawsuit alleged Lyft misclassified its workers as independent contractors instead of as employees.  Plaintiffs argued that despite this classification, Lyft treated its drivers as employees in many ways.  For example, Lyft reserved in its contracts the right to fire the drivers at will by deactivating their accounts, without warning.

[Some] of misclassifications are violative of state labor laws across the nation

Employer misclassification of employees and independent contractors is a common occurrence across the United States.  Sometimes, employers misclassify their employees by mistake, and other times, employers classify their employers as independent contractors in order to reduce costs and avoid paying certain taxes.

Traditionally, independent contractors are not subject to employer’s guidance or control as much as employees are.  The employer gives them an outcome, but they still retain control over how they provide the good or service.  Usually, independent contractors treat their employers like clients and are self-employed.

Usually, misclassification lawsuits arise when employers intentionally categorize their employees as independent contractors. Typically, this occurs in an effort to avoid paying compensating for overtime. These types of misclassifications are clearly violative of state labor laws across the nation.

Lyft will change its policies and terms of service to make sure they are in compliance and ensure drivers are treated as independent contractors under California state law

As part of the settlement, Lyft has agreed to pay $12.25 million to almost 100,000 drivers located across California.  How much money each driver is to receive will depend on how much that driver drove for the company.  For example, drivers who worked less than 50 hours total will receive lower payments; whereas, drivers who have driven more consistently for Lyft will receive more money from the settlement. This would entail drivers who work 30 hours or more a week for at least 50 percent of the weeks they have driven for Lyft.

Further, Lyft will change its policies and terms of service to make sure they are in compliance and ensure drivers are treated as independent contractors under California state law.  This compliance includes specifying a reason for firing drivers, notifying drivers at work of termination, providing chances to fix the problems, and providing a neutral arbitrator at Lyft’s expense to hear drivers’ complaints about pay if they feel they have not been properly compensated.

Under the new terms of service, drivers’ accounts will no longer be deactivated for any reason without warning; it must be for a specific reason outlined in the new agreement.  Drivers must also be given an opportunity to remedy the situation.

Even though this was a lawsuit in California, these changes in Lyft’s terms of service will apply to all Lyft drivers across the nation.  As of last year, Lyft had over 300,000 drivers actively using its services.

“We are pleased to have resolved this matter on terms that preserve the flexibility of drivers . . .”

While Lyft’s new terms of service will hopefully make a difference in California, the potential for misclassification lawsuits across the nation will still not be completely avoided.  This is because many states have stricter tests for independent contractors than California.  There’s nothing keeping another lawyer in another state from filing a lawsuit just like this one.

Richard Reibstein, an employment and labor lawyer, has said “Lyft would be well-served to reevaluate its structure and documentation, because just because you exit one lawsuit does not mean that there won’t be another coming right down the pipe tomorrow.”

Reibstein also opined that the settlement was a “modest cost” to Lyft, as the company got to keep its business model, and it likely avoided a lawsuit that would have been much more expensive.  Had Lyft lost in court, it would have likely had to categorize its drivers as employees, potentially making it liable for back wages and reimbursements for expenses.

While addressing the settlement, Kristin Sverchek, general counsel at Lyft, said, “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.”

[T]he news of this lawsuit is coming at a particularly opportune time, as Uber is also going through a lawsuit filed for a similar reason . . .

Attorney for the plaintiffs, Shannon Liss-Riordan, said that this was a good outcome, as this case is a little different than other cases similar to it, like the lawsuit with Uber.  Coincidentally, the news of this lawsuit is coming at a particularly opportune time, as Uber is also going through a lawsuit filed for a similar reason, also filed by Liss-Riordan.

The plaintiffs in the Uber lawsuit allege that they and other Uber drivers in California should be classified as employees, and thus Uber has violated sections of the California Labor Code by not reimbursing drivers for certain expenses and not passing along tips to drivers. The court has certified a class to pursue the reimbursement claim and the tips claim that includes the misclassification issue.

Drivers for Uber have very mixed emotions about the current lawsuit. Whit Fletcher, a driver in Redwood City, California, says that he is doing fine doesn’t have much sympathy for those who “thought the streets would be paved with gold.” On the other hand, Jeremy Ferrick, a driver from Sonoma, California, makes a thoughtful argument as well. He says, “Uber has to think about what kind of legacy it wants to leave. Do they want to be remembered as a company that treats people well?” Ferrick’s argument is logical, though. If plaintiffs in the Uber case win, they would very likely trigger similar lawsuits in other jurisdictions against similar companies, like in the case with Lyft.

One major difference between the two cases is that there is a class action lawsuit filed against Uber. The classes in the Uber case includes UberBlack, UberX, and UberSUV drivers who have driven for Uber in California from August 16, 2009 up to December 9, 2016. The drivers have to also meet two requirements: they must be signed up to drive directly with Uber or an Uber subsidiary under their individual name, and they must be/must have been underpaid by Uber or an Uber subsidiary directly and in their individual name.

However, in the original Uber case, two classes have been excluded from the misclassification lawsuit action: drivers who drove for Uber through limousine companies and drivers who signed up to drive under corporate or fictitious names. These drivers have currently filed their own lawsuit against Uber.

As of now, the Uber case is currently scheduled for a jury trial on June 20, 2016.  Due to an arbitration clause in Lyft’s contracts with its drivers, drivers were actually prevented from filing a class action case.

Another major difference between the Lyft case and the Uber case is that Uber is willing to litigate this matter thoroughly; however Lyft has made it clear that it is more willing to sit down and talk in order to figure out a way to resolve the matter.

Labor experts have said that categorizing workers as employees can increase the cost of doing business significantly

Liss-Riordan explained, “In the litigation we are pursuing against Uber, we hear daily complaints from drivers about how they feel Uber has mistreated them … cutting fares without their input, shortchanging them on pay they are owed, and deactivating them for no reason or no legitimate reason.” She went on to further mention, “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.”

Even though the Uber case and the Lyft case are seemingly both very similar, neither case will have an impact on the other.  The settlement reached in this case will not have an impact on the Uber case, as settlements cannot be disclosed to a jury.

Although this case doesn’t achieve everything Liss-Riordan hoped to accomplish, such as Lyft classifying its drivers as employees, she believes it will result in changes that significantly benefit drivers for Lyft.

Liss-Riordan is a Boston plaintiffs’ attorney who has worked on many lawsuits that involve “sharing economy” companies.  These types of companies include Lyft’s biggest competitor, Uber, as well as other companies such as Instacart and Shyp.

Liss-Riordan has been quite successful at these types of lawsuits, as she has won several prior lawsuits against such companies and forced them to reclassify their workers properly as employees.  She argues that companies like these can actually afford to treat their workers as employees; they just don’t want to because it means more profit for them.  Labor experts have said that categorizing workers as employees can increase the cost of doing business significantly. In some instances, the cost can rise up a to 30 percent increase.

As of now, the settlement agreement is yet to be approved by a judge in the Northern District of California.