Lyft said today that it agreed to pay $12.25 million to settle a pending worker classification lawsuit in California, but it will continue to classify its drivers as independent contractors, not employees.
The ride-hailing app will also start giving drivers a specific reason, like a low rating, if it decides to deactivate their accounts. Its terms of service had previously stated Lyft can deactivate driver accounts for any reason. Lyft also agreed to pay legal costs for the plaintiffs. The entire settlement is embedded in a PDF below.
The class action lawsuit, filed in 2013 by Patrick Cotter, Alejandra Maciel, and Jeffrey Knudston, accused the startup of misclassifying Lyft drivers as independent contractors instead of employees and failing to reimburse business expenses, including gas and mileage costs.
Despite the multi-million settlement it now has to pay to qualifying drivers in California, the outcome is a good one for Lyft because it can keep an important part of its business model. It’s also a positive sign for rival Uber, which is currently facing its own worker classification lawsuit. The case is set for trial in June 2016 and will decide if Uber needs to classify drivers as employees and start paying business expenses.
In a statement, Lyft said that about 80 percent of its drivers use its platform 15 hours a week or less to supplement their main income.
“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 benefitting from safe, affordable transportation,” said the company’s general counsel Kristin Sverchek.
She added that Lyft will look at ways to provide portable benefits, an approach the chief executive officers of some on-demand companies (including Lyft, Handy, Etsy, and Instacart) have advocated in order to give contractors the same safety net, including sick leave and workers’ compensation, as full-time employees.