Lyft Inc. is offering about 100,000 drivers in California an average of $56.14 each and some non-monetary perks to drop claims that the ride-sharing company systematically exploits them.
The Teamsters union says the settlement forfeits the main goal of the drivers’ lawsuit – to force Lyft to treat them as full-fledged employees rather than contractors.
If Lyft persuades a federal judge to approve the accord announced in January, the company will be a step ahead of its larger rival Uber Technologies Inc., which is scheduled to go to trial in June in a similar lawsuit seeking hundreds of millions of dollars in damages.
U.S. District Judge Vince Chhabria in San Francisco, after hearing objections Thursday from a handful of drivers represented by the Teamsters, voiced concern that the pact may be inadequate because the $12.25 million it provides – a third of which is for attorney fees – is far less than the exposure Lyft may face if the case goes to trial. He didn’t rule at Thursday’s hearing on Lyft’s request for preliminary approval of the settlement.
The judge said that given Lyft’s recent accelerated growth and accounting for various claims including gas and mileage reimbursement going back to May 2012, the drivers may be giving up more than $170 million in potential damages.
“I have to do some sort of assessment of the value of the claims compared to the settlement amount,” Chhabria said.
Lyft and Uber have built their businesses around a flexible car fleet piloted by people they contend are independent contractors. In addition to lawsuits claiming the drivers should be reclassified as employees, both companies face scrutiny from regulators including state-level labor commissioners and the National Labor Relations Board. How the issue is resolved for Lyft and Uber will help define the future of sharing-economy companies that depend on casual labor and software applications to provide services from food delivery to helicopter trips.
Shannon Liss-Riordan, the lawyer who negotiated the January settlement on behalf of drivers, said that while the proposed payout is modest, it provides real benefits and meaningful reforms in how the company treats drivers. Both she and the company highlighted a revision to the drivers’ contract that will allow the company to deactivate them only in specific circumstances and not for “any reason.”
Lyft said when the agreement was reached that it had already signed onto a set of principles, along with leaders of other sharing-economy companies, aimed at “preserving flexibility while also providing greater economic security” for workers.
Liss-Riordan has said in interviews and court filings that pursuing the lawsuit further was risky because she faced an uphill battle overcoming a provision in the drivers’ contracts requiring them to take disputes to arbitration instead of court.
“By definition, a settlement is a compromise, and does not achieve complete victory for either party,” Liss-Riordan said in a March 10 court filing. Liss-Riordan, who also represents drivers in the class action against Uber, has said she holds a better hand in that case because a different judge ruled Uber’s arbitration agreement can’t be enforced.
The Teamsters contends the worst of part of the settlement isn’t how little money it provides, but that it will put a judge’s imprimatur on an “illegal” business model that deprives workers of “state and federal safety nets such as minimum wage, unemployment insurance, medical and sick leave, social security, and many others.”
“The Teamsters Union has spent considerable time, effort, and expenditures in efforts to reverse misclassification and to organize workers in the ‘gig’ or ‘sharing’ economy,” the drivers who object to the settlement said in a March 15 court filing.
Sharing-economy contractors aren’t currently authorized under federal and state labor laws to organize in unions and engage in collective bargaining. A bill pending in the California Legislature would allow independent contractors who perform their work through smartphone apps to negotiate as a group over the terms of their contracts.
While objections to settlements of class-action lawsuits aren’t uncommon, judges typically approve accords if they appear fair and reasonable. Before announcing their January agreement, Lyft and the suing drivers held several settlement conferences with a magistrate judge assigned to the case by Chhabria.
“I would be surprised if the court found that the settlement did not pass muster,” Daniel M. Hutchinson, a lawyer not involved in the case, said before hearing.
Still, in preparation for Thursday’s hearing, Chhabria directed Liss-Riordan and Lyft to answer a series of pointed questions that raise some of the issues aired by the Teamsters. The judge asked if there’s legal authority for him to approve a settlement that doesn’t meet the lawsuit’s objective to get the drivers declared employees.
“Is this aspect of the settlement agreement contrary to the original goal of the lawsuit?" Chhabria asked.
Lyft, in its written response, said that while it “cannot speak to the original goal of the lawsuit,” the company found through an independent survey of 3,100 drivers that 82 percent of them “agreed or strongly agreed” that they “like being an independent contractor” and 97 percent said they “enjoy being my own boss.”
The Lyft case is Cotter v. Lyft Inc., 13-cv-04065, U.S. District Court, Northern District of California (San Francisco). The Uber case is O’Connor v. Uber Technologies Inc., 13-cv-03826, U.S. District Court, Northern District of California (San Francisco).