U.S. Judge Rejects Settlement Between Lyft and Drivers

Once upon a time there was a concept called the sharing economy, which posited that cars left unused 23 hours a day, spare rooms and even tools lying around the house could be put to work. The idea was to share resources, reduce waste and society’s preoccupation with “stuff,” and let owners make some spare cash.

Then a funny thing happened along the way, turning this organic movement into one that, to many critics, became far too corporate. Entrepreneurs and venture capitalists sniffed opportunity, and to their credit, they invested in ridesharing services such as Uber and Lyft. Now these companies combined have a market capitalization worth billions of dollars (the lion’s share is owned by Uber). In many cities, where taxis are far too expensive and public transportation is inadequate, ridesharing has filled a void allowing for commuters to move from home to office or to the bar at night. Even Starbucks has waded into ridesharing, allowing its customers to score free lattes if they become regular users of Lyft.

But trouble has brewed in recent years as more Lyft and Uber drivers relied on ridesharing for income, while other drivers felt the time put into driving for these services was no longer worth the effort. Two Lyft drivers in California, Patrick Cotter and Alejandra Maciel, believed they should be reimbursed for their cars’ maintenance and gasoline. But since Lyft considered them independent contractors, and not employees, the law did not require the company to compensate them for such expenses. Cotter and Maciel ended up filing a class-action lawsuit in California in 2013, just one year after Lyft was founded. Lyft has offered to settle the case for $12.25 million, but late last week, U.S. District Judge Vince Chhabria rejected those terms.

California labor laws covering the employment status of Cotter, Maciel and thousands of California Lyft (and Uber) drivers are murky. On one hand, these drivers could be considered independent contractors, since they have the ability to make their own schedules and base themselves out of their home or wherever they want. However, Lyft has the right to terminate their employment for any reason, and Lyft retains the right to dictate how their drivers perform their jobs once they are working on the company’s schedule — which are often terms of full-time employment.

A jury was assigned to rule on Cotter v. Lyft, and came to a split decision. At first, drivers who primarily derive income from working for Lyft would be considered full-time employees, as California’s labor law was designed to protect such workers. Part-time drivers, however, would still be considered independent contractors. That decision was then referred to another judge to decide what the exact compensation amount would be.

Lyft would not have any part of a settlement that considered drivers employees, so eventually an agreement was reached allowing the company to terminate employees only for “breach of contract.”

Although California Judge Vince Chhabria acknowledged labor advocates would not be pleased with this arrangement, his response was, “The changes certainly aren't revolutionary, but they are not nothing, either.”

Judge Chhabria, however, had a huge problem with the monetary amount of the settlement. Noting that the $12.25 million figure would only compensate Lyft drivers an average of $56, he said that figure “does not fall within the range of reasonableness.”

The judge pointed out that while Lyft’s attorneys claimed the total reimbursement was $64 million, using their methodology would result in a total claim almost double that figure, $126 million. Describing the proposed claim as being based on a “defect in the reimbursement calculation,” Judge Chhabria has ordered that a new settlement be presented to the court no later than May.

Meanwhile, the Teamsters Union, which has been supportive of Lyft’s drivers during the litigation and filed complaints on their behalf with the National Labor Relations Board office in San Francisco, cheered Judge Chhabria’s rejection of the settlement terms. “We are pleased with today’s ruling,” a Teamsters official said in a press statement. “We are hopeful that Lyft drivers will get more of the money that they deserve thanks to our objections in this case, and we proudly continue to stand with Lyft workers who have been misclassified and are seeking justice.”

Image credit: SPUR/Flickr