In 2013, Patrick Cotter filed a misclassification class action lawsuit against Lyft, the ride sharing company. Mr. Cotter claimed that the company was treating its drivers, of which he was one, as employees instead of independent contractors, but continuing to classify them as the latter in order to save on administrative and tax costs. This was in turn freezing Lyft drivers like Mr. Cotter out of benefits from the company that employees were otherwise eligible for, as well as minimum-wage and overtime protections guaranteed by law. Misclassification of employees as independent contractors is a massive issue in employment law, especially in the newly developing and quickly expanding ride-sharing industry.
On January 26, 2016, Lyft reached a settlement with Patrick Cotter and the class of Lyft drivers represented in the action. However, no one will be reclassified as an employee. Instead, Lyft has agreed to pay $12.25 million to the drivers within the class, and the company has agreed to change their employment contract that drivers must sign in order to maintain consistency with the definition of an independent contractor.
Under the settlement, Lyft surrendered the right to at-will termination, and must now find cause in order to terminate one of its drivers. This had previously been used by the company to let go of drivers who turned down rides, and was a point of contention (among others). By exerting this amount of control over the performance of a driver, Lyft had left itself vulnerable to the argument that the relationship it had with its drivers was less independent, and more equivalent to that of an employee and an employer.
In addition to surrendering the right to at-will termination, Lyft has agreed to pay the costs to arbitrate all of its drivers’ grievances, and to implement a pre-arbitration process. While this will undoubtedly be a substantial cost to the company, they clearly feel that between the arbitration costs and the $12.25 million settlement figure, the company will still save money in comparison to a scenario that saw each of its drivers classified as an employee.
While this blog has previously covered the ongoing similar class action law suit involving Uber, Lyft’s main competitor, it remains to be seen how much influence or effect, if any, this settlement will have.
If you think you have been misclassified as an independent contractor or have any other employment related issue, please contact Stephen Danz & Associates for a free consultation. With 10 law offices across California, Stephen Danz & Associates is here to serve you and to turn employer wrongs into employee rights.