Los Angeles, CACountless independent contractors and employers, not only on-demand companies and Lyft and Uber drivers, are paying close attention to the proposed Lyft settlement. “Many companies hire independent contractors, so whatever the outcome, it may have long-standing implications,” says attorney Todd Scherwin, who specializes in labor and employment law. Under California labor laws, those drivers are currently classified as independent contractors rather than employees.
The misclassification class action, first filed in 2013, reached a proposed settlement this January: Lyft agreed to pay $12.25 million to affected drivers. The settlement will also see the driver terms and conditions agreement changed to more accurately reflect the independent contractor designation. But drivers had filed the lawsuit seeking to be recognized as employees.
The reason why U.S. District Judge Vince Chhabria didn’t approve the Lyft Settlement last week is because it created a number of questions. If the intention of the class action was about plaintiffs being misclassified as independent contractors rather than employees, the settlement may not solve anything. And therein lies the problem.
Todd Scherwin defends companies in litigation similar to this one - a lot. So what is Lyft’s rationale - why settle than battle it out in court? “Litigation is expensive and if Lyft decides to fight, they could lose,” says Scherwin. “They may be thinking it’s better to pony up the money now and that will change things enough to have more power on their side - to show drivers are independent contractors. And if someone sues them later, they’ll have a stronger argument. Maybe they want to let Uber fight or take the bullet.”
So Lyft can either fight tooth and nail and win, or maybe lose, and that’ll cost them more. Or they can pay the settlement now and hope giant Uber wins in court this coming June.
Whatever the Lyft outcome, these misclassification cases represent a challenge and not just for lawyers. It’s a constant struggle for employers to decide how to classify their employees, one of the main issues with Scherwin’s clients.
“The Lyft and Uber outcomes will be determined by what standards the court and lawyers look at and what standards will be pushed forward to challenge current laws,” Scherwin explains. “When you look at the law over the years and what constitutes independent contractors versus employees, key factors suggest Uber and Lyft drivers are independent contractors. These factors are lack of control the company has over them; the ability to control when they work; and how much profit they make instead of companies telling them what to do.”
Scherwin predicts that Lyft will settle and Uber will fight. “Under the law, the way the law is written and interpreted, I believe the Uber driver is an independent contractor,” he says. “Whatever the outcome, this issue is a challenge; there will be fighting and struggling over misclassification and it will become more obvious with our sharing economy. Guaranteed we will be talking about this for months and years to come.”
The Lyft lawsuit is Cotter v. Lyft Inc., 13-cv-04065, US District Court, Northern District of California (San Francisco). The Uber case is O’Connor v. Uber Technologies Inc., 13-cv-03826 US District Court, Northern District of California (San Francisco).
Todd Scherwin is managing partner of the Fisher & Phillips LLP Los Angeles office. His litigation practice involves representing employers in various aspects of labor and employment law. Todd also counsels employers on dealing with difficult issues with their workforce including state and federal leave laws and wage-hour laws. He regularly provides human resource training to clients and speaks to employers and employer groups regarding labor and employment issues.
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