Lyft to pay $272.5 million to settle suit over driver misclassification

The settlement resolves claims Lyft misclassified California drivers as independent contractors rather than employees.SAN FRANCISCO (CN) — Lyft agreed to pay more than $272 million to settle claims the ride-hailing platform violated state law by misclassifying drivers as contractors, rather than employees, depriving them of critical workplace protections, state leaders announced Thursday.“For years, Lyft drivers provided essential services keeping our communities moving while being denied the wages and benefits they earned,” San Francisco City Attorney David Chiu said in a press release. “Misclassification exploits workers, fuels inequality and creates an unfair economy. This is the largest wage and hour settlement in California history, reflecting both the seriousness of the harm and our unwavering commitment to stand up for workers across California.”Under the settlement, Lyft will pay $272.5 million in restitution and penalties, with around $237 million, or 87%, reserved for drivers. A third-party settlement administrator will manage the restitution fund.A judge must approve the settlement before it is finalized. Following approval, eligible Lyft drivers will be contacted by the fund administrator on when to expect payment. Drivers’ compensation will be based on the number of hours and miles driven between April 5, 2016, and Dec. 15, 2020.“Hard-working employees deserve full compensation for their labor. We have not and will not stand by when companies attempt to shirk their legal responsibilities and deprive employees of their wages and benefits as required under California law,” California Attorney General Rob Bonta said in the release.In a statement, Lyft said the majority of drivers “have always wanted to be independent contractors,” saying the settlement “closes a chapter from a very different time, before Prop 22.”“Lyft believes drivers have always been properly classified under the law, and we’re glad to put this case behind us. We remain laser focused on helping create more earnings for drivers and more affordable rides for riders,” the company said.The dispute over worker classification can be traced back to April 2018, when the California Supreme Court adopted a new labor standard in Dynamex v. Superior Court that made it harder for companies to treat workers as independent contractors.To label someone a contractor under the stricter standard, called the “ABC test,” a company must show it does not directly control the worker, that the work falls outside its usual course of business and that the worker is “customarily engaged in an independently established trade.”In 2019, Governor Gavin Newsomsigned Assembly Bill 5, which codified the Dynamex standard into the state labor code and guaranteed minimum and overtime wages, workers’ compensation and other benefits regular employees receive to contract workers.However, app-based gig companies including Uber and Lyft continued to classify workers as contractors after AB 5 took effect, leading then-California Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Francisco and San Diego to sue the two ride-hailing companies in May 2020 for violating the statute.In November 2022, California voters passed Proposition 22, exempting app-based transportation and delivery drivers from AB 5. The ballot measure allows drivers who meet certain conditions to be classified as independent contractors rather than employees, exempting them from certain employment benefits such as unemployment insurance, paid sick leave and the right to unionize.Union-backed drivers initially prevailed in their challenge to the enactment of Proposition 22 in state court, but that decision was reversed on appeal and upheld by the California Supreme Court in 2024.However, because Proposition 22 took effect after the period covered by the case against Lyft, the settlement does not require Lyft to reclassify drivers going forward or provide relief for later work, according to the California Labor Commissioner’s Office.The same city and state attorneys will continue to litigate the case against Uber, who is the remaining defendant in the case, said Chiu.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads