Duane Morris Takeaway: This week’s episode features Duane Morris partners Jennifer Riley and Daniel Spencer with their analysis of a monumental settlement proposed to resolve misclassification claims involving four legal actions on behalf of California-based rideshare drivers.
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Episode Transcript
Jennifer Riley: Hello, everyone, and thank you for being here again for the next episode of the Class Action Weekly Wire. I’m Jennifer Riley, and joining me today is my colleague, Daniel Spencer. Daniel, thank you so much for being on the podcast today.
Daniel Spencer: Glad to be here, Jen.
Jen: So today, we’re discussing a major development in California worker classification litigation: Lyft’s proposed $272.5 million settlement of coordinated litigation, alleging that it misclassified drivers as independent contractors. This is notable, not only because of the size of the settlement, but because it brings together claims by the California Attorney General, several city attorneys, the California Labor Commissioner, and two plaintiffs pursuing claims under the Private Attorneys General Act, or PAGA. Let’s start with the background, Daniel. How did we get to a settlement this large?
Daniel: So, this dispute goes back several years, and it’s pretty much at the intersection of California’s changing workers’ classification rules and the growth of the gig economy. The settlement revolves around four actions against Lyft that were ultimately coordinated in the Uber Technologies Wage and Hour Cases. The plaintiffs allege that list misclassified drivers as independent contractors, and as a result, denied them compensation and protections available to employees under California law. Lyft denied those allegations, and importantly, the proposed judgment expressly states the court has made no determination that Lyft is liable in this case. The settlement covers all unlawful conduct before December 16, 2020, and the effective date of Prop 22. So, this is essentially resolving all the historical misclassification fights involving Lyft and in these coordinated cases, rather than deciding how the driver should be classified under the current Prop 22 framework.
Jen: Got it. So, that distinction seems pretty important, because someone just seeing a $272 million price tag could perhaps easily conclude that Lyft has agreed now that its drivers are employees.
Daniel: Exactly. That would be a bridge too far, so to speak. So, the agreement specifically says it does not constitute an admission that Lyft drivers were, or currently are employees, or that Lyft was ever or currently its employer. It also says that the settlement does not bear on the classification of drivers under Prop 22. So, this resolves a very substantial historical claim, but it doesn’t produce any type of ruling on the ultimate classification question.
Jen: Got it, that makes sense. So, I will note that this settlement itself is a non-reversionary common fund settlement with a principal amount of $272.5 million, but Lyft is scheduled to pay this over time. Lyft is scheduled to pay $120 million during the first year after the settlement becomes effective, beginning with a $30 million payment within 14 days of the effective date. The remaining $152.5 million is payable over the following three years with a 5% simple annual interest on the outstanding principal after the first year. Lyft also has the option to accelerate those later payments. There are also several specific allocations. Just over $20.4 million, or 7.5% of the gross fund is set aside as penalties under the California Unfair Competition Law. Nearly $15 million, or 5.5%, is allocated for the PAGA plaintiffs’ attorneys’ fees and costs. The two individual named plaintiffs, Mr. Olson and Mr. Seifu, can seek service awards of up to $20,000 each, subject to court approval. And then, $5.45 million is specifically allocated to what the agreement calls Berman Claimants, meaning the cover drivers who had pending wage claims with the labor commissioner when that action is filed.
Daniel: That’s right, Jen, and the remaining Drivers’ Compensation Fund generally will be distributed according to the miles drivers accumulated during what the agreement calls P2 and P3 time. So, in simplified terms, that covers mileage associated with traveling to pick up a rider after accepting a trip and then transporting a rider. Eligible drivers who are Berman Claimants receive double credit for those miles in that portion of the allocation formula. The agreement defines covered drivers as people who completed at least one Lyft ride, beginning or ending in California between April 5, 2016, to December 15, 2020, although eligibility for payment is subject to additional criteria under the agreement.
Jen: Daniel, another thing that stood out to me is that this isn’t simply Lyft writing a check and walking away. There are also some fairly substantial enforcement mechanisms built into the agreement.
Daniel: Absolutely. So, the agreement provides a 14-day notice and cure period if Lyft misses a required payment, although Lyft has that cure provision, as a matter of right, only three times. After that cure period is discretionary. If Lyft fails to cure on an overdue payment when required, the outstanding judgment amount can become immediately due, and the plaintiffs can seek enforcement, along with attorneys’ fees and costs. There are also provisions addressing significant asset transfers, successors, and bankruptcy. And the parties are required to report periodically to the court on its implementation, with the San Francisco Superior Court retaining jurisdiction during that process. So, although the principal payments are spread over several years, the agreement creates mechanisms designed to secure and enforce those obligations if those payments are not timely met.
Jen: Got it. So, let’s shift to the bigger question for our listeners: What should employers take away from a settlement involving a business model as unusual as an app-based rideshare platform?
Daniel: Well, I think the first takeaway is that workers’ classification risk can compound dramatically over time. The period here covers from April 2016 to December 2020, and the allegations were not just coming from individual workers. The coordinated litigation involved the California Attorney General, City’s Attorney, the labor commissioners, and numerous PAGA plaintiffs. So, for employers, this illustrates why classification decisions should not be viewed simply as a question of whether one worker might bring a wage claim. A disputed classification model can potentially impact wages, expense reimbursement, penalties, PAGA exposure, and government enforcement simultaneously. Employers should be careful about assuming that a business model has operated for years without final adverse judgment is insulated from some sort of risk. California classification landscape has changed considerably during the period involved here, and the settlement itself recognizes that Proposition 22, referred to as Prop 22, as a dividing line, and resolves all alleged conduct before that law took effect. That means that companies using independent contractors should revisit their classification analysis as the case law develops, and, frankly, review classification decisions on a pretty regular basis to make sure that those decisions are grounded in applicable law.
Jen: And the settlement seems to demonstrate another point that we’ve talked about before, which is that classification isn’t just about the label, let’s say in a contract or a job description.
Daniel: That’s absolutely right, and I hear this all the time. Calling someone an independent contractor does not end the analysis. Companies operating in California are required to look at classification and they need to pay attention to the governing statutory framework in any industry-specific rules or exemptions. This is especially important for businesses that rely on heavy contractors as part of their core operations. The potential exposure can increase dramatically when the classification decisions is replicated across a large workforce and over a period of years.
Jen: So, if you had to leave employers with two or three things to do after seeing a settlement like this, what would they be?
Daniel: So first, I’d periodically audit the independent contractor relationships that I have, any employees who we’re saying are working on a 1099 basis, particularly in California, but I would also look at other jurisdictions where the governing tests have evolved over time. The second thing I would do is examine the relationship in practice. Not merely the language of the contractor agreement, I would look at what is actually being done by that person, labeled an independent contractor, to determine whether or not it fits within any exemption. And third, and finally, I preserve the records that allow the company to reconstruct the relationship, the payment of invoices, and everything that’s gone on between the company and the contractor in case it’s challenged years later. The case demonstrates how significant the stakes can become when a classification issue affects a large workforce for an extended period.
Jen: All right, that’s a good place to leave it. The Lyft settlement is remarkable for its size, but perhaps the more important story for employers is the combination of worker classification questions, California’s evolving legal landscape, PAGA exposure, public enforcement, and years of potential accumulated liability. Daniel, thank you so much for joining me today.
Daniel: Thanks for having me, and thanks to everybody for listening.
Jen: Thanks so much for joining the latest episode of the Class Action Weekly Wire. We will see you next week.