Lyft Pays $12 Million Settlement in Driver Lawsuit

AP Photo/Jeff Chiu

Having reached a compromise with its drivers, ride-hailing company Lyft has averted a class action lawsuit and avoided driver classification changes which would drastically affect their business model.

The California-based company has proposed a settlement, contingent on a federal judge’s approval, which includes a $12.25 million payout split amongst the company drivers based on how many work hours they have logged. The company has also agreed to alter their at-will termination policy, restricting driver deactivation to a set of predetermined reasons, as well as properly notifying a driver who is at risk of deactivation so they may contest the ruling — at Lyft’s expense.

While the settlement does not reclassify the drivers as official employees, Shannon Liss-Riordan, one of the attorneys representing the drivers, believes they will reap significant benefits from the company. However, Jackdaw Research chief analyst Jan Dawson feels as though “Lyft got off fairly lightly,” as such a change would be considerably more expensive and complicated than the cost of the proposed deal.

The lawsuit was filed in 2013 by three former Lyft drivers who argued against their independent contractor status, claiming they were employees eligible for company benefits such as expense reimbursements. Worker classification has become a hotly debated topic as of late. On-demand companies such as Lyft and its main rival Uber claim that the drivers benefit from the freedom and flexibility of independent contractor status. Yet many criticize the exchange of employee benefits, including minimum wage and expense reimbursements, for low business costs.

This isn’t the first time Lyft has faced litigation. In June of last year, they settled with New York State after allegedly allowing their drivers to operate without state-authorized insurance.

Although the settlement pends the judge’s approval, Lyft’s general counsel Kristin Sverchek reports that the company is “pleased” with the terms of resolution. Meanwhile, Lyft’s rival ride-sharing company Uber also faces a misclassification trial this June.

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