Lyft has agreed to pay $12.25 million and offer new termination protections under a class action lawsuit settlement. Drivers under the agreement will still not be considered employees.
Lyft was sued by its drivers after they claimed they were misclassified as independent contractors instead of employees. The drivers said they were entitled to expense reimbursement and overtime.
This isn’t the first time a ride-sharing company has faced accusations about misclassification, Uber is facing a similar class-action lawsuit that was filed in June in San Francisco.
While they will remain independent contracts, Lyft drivers will gain some new benefits. For example, Lyft can no longer terminate employees without notice and for any reason. Instead, the company can only fire drivers for specified reasons.
“While the settlement does not achieve everything we had hoped for – namely a reclassification of the drivers as employees … it will result in some significant changes that will benefit the drivers,” said Shannon Liss-Riordan, an attorney for the drivers.
As the contractor versus employee battle rages on, investors are closely watching these cases. If contract workers are forced to move into employee roles, it will greatly reduce the bottom line for company’s like Uber and Lyft. Employees are more costly because of benefits such as medical coverage, tax payments made by companies, and expense reimbursement.
There is however some advantages to part-time or full-time employee status. For example, Instacart gives all of its contractors the option to move into part-time status. The company does so because employee training could not occur without that employee status.
The Lyft settlement will affect at least 100,000 drivers in California who have driven for the company at least once. The amount paid to drivers will depend on how many take advantage of the settlement.