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Lyft to pay $272.5 million to settle California driver misclassification lawsuit

Settlement covers alleged violations from 2016 to 2020; Uber still faces a similar case

By LineZotpaper
Published
Read Time2 min
Ride-hailing company Lyft has agreed to pay $272.5 million to settle a California lawsuit that accused it of misclassifying drivers as independent contractors instead of employees, violating state labor law. The settlement, which requires court approval, covers alleged violations between April 2016 and December 2020 and directs funds to drivers who filed wage claims.

Lyft disclosed the settlement in a regulatory filing, stating that it believes the agreement will allow it to avoid the “costs and distraction of protracted litigation and enable management to maintain its focus on executing its business objectives.” The company could not be reached for comment.

The lawsuit, filed by the California Labor Commissioner’s Office in August 2020, alleged that Lyft denied drivers minimum wage, overtime, paid sick leave and other benefits and protections guaranteed to employees under state law. The case was coordinated in San Francisco Superior Court in September 2021 along with similar actions from the California Attorney General and city attorneys of Los Angeles, San Diego and San Francisco, as well as private claims under California’s Private Attorneys General Act.

California Labor Commissioner Lilia García-Brower said in a statement: “This settlement is about the workers who came forward and spoke up. Their voices made this outcome possible.” She added that the Labor Commissioner’s Office will forgo its share of the settlement and direct those funds to drivers who filed wage claims.

The period covered by the settlement was a turbulent time for gig economy regulation in California. The state passed Assembly Bill 5 in 2019, requiring companies like Lyft to classify gig workers as employees. However, voters passed Proposition 22 in 2020, which carved out app-based transportation and delivery companies from that requirement, allowing drivers to remain independent contractors. Lyft and Uber continued classifying drivers as contractors even after AB 5 took effect, leading to legal action.

This settlement resolves the case for Lyft, but Uber still faces a similar lawsuit from the California Labor Commissioner's Office making comparable allegations.

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Analysis

Why This Matters

  • Drivers who filed wage claims stand to receive compensation from the settlement fund, with the Labor Commissioner directing its share to workers rather than state coffers.
  • The settlement closes a legal chapter for Lyft but leaves Uber exposed to a similar lawsuit, highlighting ongoing regulatory tension in the gig economy.
  • It reinforces the significance of Proposition 22, which voters passed after AB 5, as the current legal framework for driver classification in California.

Background

The gig economy classification fight in California has been a high-profile battle for years. Assembly Bill 5, passed in 2019, codified a strict test for independent contractor status, aiming to give gig workers employee benefits. Companies like Lyft and Uber resisted, continuing to classify drivers as contractors. In response, voters approved Proposition 22 in November 2020, exempting app-based transportation and delivery services from AB 5 while providing some alternative benefits. This settlement covers the transitional period between AB 5 and Prop 22 when Lyft was still classifying drivers as contractors.

Key Perspectives

California Labor Commissioner's Office: The office secured a significant settlement for workers it alleged were denied lawful wages and protections, calling the deal a victory for drivers who spoke up. Lyft: The company says the settlement allows it to avoid the cost and distraction of continued litigation and keep management focused on business operations. It did not admit wrongdoing. Critics/Skeptics: Some may argue that Proposition 22 leaves gig workers without full employee protections, and that the settlement only covers past violations without changing current practices. Uber still faces a separate, unresolved lawsuit on similar grounds.

What to Watch

  • Whether a judge approves the settlement and how the distribution of funds to drivers is structured.
  • The outcome of the Labor Commissioner's ongoing lawsuit against Uber, which could set a further precedent or lead to another large settlement.
  • Potential legislative or ballot efforts to revisit gig worker classification in California or other states.

Sources

Zotpaper

Written by software from the reporting listed above, scored by an automated standards desk, and published without a person reading it first. If something here is wrong, tell the editor and it will be put right.

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