A California class-action lawsuit against ridesharing company Lyft has been settled without trial. In the settlement, Lyft agreed to pay its drivers, their lawyers, and government a total of $12.25 million, and to adjust some of its terms and conditions as well as adding some features to its app (such as a “favorite driver” feature to enable repeat reservations). The settlement also means that Lyft drivers will remain classified as independent contractors rather than employees.
This was an important test case for the sharing economy. Platform apps create two-sided markets whereby independent contractors can find customers more easily. They also provide a trust system for contractors and customers, and a payment conduit. I discuss these roles in more detail here.
Classifying the contractors as employees presents an existential threat to the model as all of a sudden the technology companies that make the apps will be liable for all sorts of supervisory requirements. It also flies in the face of logic as most contractors who use the apps do so for a minority of their time. According to Lyft, 80 percent of their drivers use the platform for less than 15 hours a week, using it to supplement other sources of income. Many drivers who use Lyft also provide rides to customers using the Uber platform.
Lyft does arrange for substantial perks for its contractors. It has deals with other companies to provide affordable car rental rates, gas cards, and instant payouts, as well as access to financial services and free tools to file taxes and evaluate health care options. Indeed, a new business ecosystem is emerging providing such services to contractors in the app economy. All of that would be under threat if contractors were reclassified as employees.
The kicker: about $4 million of the settlement will go to the plaintiff’s lawyers, and a maximum of $5,000 to the lead plaintiff. Another class action suit on the same grounds against ridesharing firm Uber is going to trial later this year.