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A federal judge has approved a settlement between drivers and Lyft for $27 million, but the case leaves a significant question unanswered: are the drivers independent contractors or employees?
The drivers sued the company in 2013, alleging they were employees entitled to reimbursement for expenses such as gasoline and maintenance. The company treated them as independent contractors, so they had to pay for those expenses.
U.S. District Judge Vince Chhabria said the $27 million settlement is better than $12.5 million, which he previously rejected, but it does not answer the big question.
"The agreement is not perfect," he said. "And the status of Lyft drivers under California law remains uncertain going forward."
Employee v. Independent Contractor
The issue is bigger than Lyft, as Uber is also fighting lawsuits in California and Massachusetts over the same question. Lyft has more than 700,000 drivers in the United States, and Uber has more than 1.5 million around the world.
In Uber's case, a judge rejected a proposed $100 million settlement last year. That proposal would allow Uber, like Lyft, to continue classifying drivers as independent contractors.
The companies want to continue paying their drivers as independent contractors to avoid expenses, but the market ramifications are also far-reaching. According to reports, the companies will be devalued if their drivers are classified as employees.
Lyft claims that 80 percent of its drivers prefer being independent contractors because it gives them flexibility, according to a survey. Independent contractors, for example, can choose their own hours and decide where they want to work.
State and Federal Laws
The unresolved issue poses some risks because drivers may still make claims through government agencies.
For example, employees may claim unemployment benefits and overtime wages that are not generally available to independent contractors. In California and Florida, Uber drivers have successfully claimed such benefits because the government agencies deemed them to be employees.
In the Lyft case, the parties are well-aware of the settlement's limitations. But attorney Shannon Liss-Riordan said her clients were "very pleased to be at the end of the process."
"The question of whether the drivers are appropriately classified as employees or independent contractors will just have to wait for another day," she said.