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Judge Rejects $12M Settlement in Lyft Misclassification Suit

A federal judge in California rejected the $12.25 million settlement proposal that Lyft offered in the misclassification class action suit Lyft drivers brought against the ride-hailing company. U.S. District Judge Vince Chhabria found the settlement number to be a gross miscalculation of what the drivers – which Lyft misclassified as independent contractors – were actually owed.

Settlement Proposal is "Too Modest"

Lyft came up with the $12.25 million amount based on a mileage reimbursement calculation of $64 million. By the class’s own methodology, however, the mileage reimbursement was a much larger figure: $126 million. “The modest nonmonetary relief set forth in the agreement does not come close to making up for these serious defects in the monetary aspect of the settlement,” Judge Chhabria said.

The mileage reimbursement calculated by Lyft therefore shortchanged the drivers by at least half.

“We believe we reached a fair agreement with the plaintiffs and are currently evaluating our next steps,” Lyft said.

Under the settlement, Lyft would have avoided changes to a labor model that relies on classifying drivers as independent contractors. The drivers sought to be reclassified as employees, which would make them eligible for all the benefits independent contractors do not get to enjoy: overtime pay, minimum wage, and other benefits.

Judge Chhabria believes the parties could file a revised settlement by the end of May.

Shannon Liss-Riordan, the attorney representing the Lyft drivers, said, “As the court recognized, we had been working from older data that Lyft had provided to us. We look forward to revisiting this now that Lyft has provided us more updated data, or pressing forward if a new resolution cannot be reached.”

Under the proposed settlement agreement, Lyft was not required to reclassify its drivers as employees. They are currently classified as independent contractors and bound by Lyft employment arbitration agreements. Misclassification suits are growing now more than ever, with Uber Technologies Inc. facing trial in June for the similar class action suits Liss-Riordan brought against the ride giant.

California Misclassification Suits Continue to Grow

The allegations against Uber – Lyft’s biggest rival – are also pending in California federal court and allege its drivers should be regarded as employees rather than contractors.

[sws_pullquote_right] See Also: Uber Drivers Seek Classification As Employees [/sws_pullquote_right]

Labor rights groups such as the Teamsters believe Judge Chhabria’s refusal to approve the settlement speaks to a gross undervaluing of all of the drivers’ claims, including its worker misclassification claim. The Teamsters, along with other Lyft drivers, previously filed objections to the settlement and more recently filed a motion to intervene in the lawsuit.

Rome Aloise, Teamsters International Vice President, said, “We are pleased with today’s ruling. We are hopeful that Lyft drivers will get more of the money that they deserve thanks to our objections in this case, and we proudly continue to stand with Lyft workers who have been misclassified and are seeking justice.”

According to the U.S. Department of Labor, the misclassification of employees as independent contractors presents one of the most serious problems facing affected workers, employers and the entire economy.

Fissured Relationship

In recent years, the employment relationship between workers and the businesses receiving the benefit of their labor has fissured apart as companies have contracted out or otherwise shed activities to be performed by other businesses. This is accomplished through, for example, the use of subcontractors, temporary agencies, labor brokers, franchising, licensing, and third-party management.

Fissuring may lead to the misclassification of employees as independent contractors in a variety of ways, such as employers simply mislabeling certain employees as independent contractors to reduce payroll costs and to avoid providing expensive employee benefits.

The DOL supports the use of legitimate independent contractors – who play an important role in our economy – but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses.

The case is Cotter et al. v. Lyft Inc. et al., case number 3:13-cv-04065, in the U.S. District Court for the Northern District of California.

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