Lyft Pays Price for Success in Rejected Driver Pay Accord

  • Judge says $12 million payout shortchanges California drivers
  • Company, drivers encouraged by judge to draft new agreement

Lyft Inc. became a victim of its own success Thursday when a judge rejected its bid to make peace with its drivers for offering them a tiny sliver of the company’s exploding revenue.

Now, the ride-sharing service is back in a courtroom showdown with its workforce similar to larger rival Uber Technologies Inc.’s fight against its California drivers set for a trial for June. The competing startups are on the front lines of a nationwide battle over whether the business model used in the so-called sharing economy systematically exploits workers.

The writing on the wall that Lyft’s settlement was doomed came at a March 24 court hearing when the San Francisco judge overseeing the case questioned the math behind a proposal to pay the company’s California drivers an average of $53 each to drop their demand to be treated as employees rather than independent contractors.

U.S. District Judge Vince Chhabria prodded the drivers’ lawyer to acknowledge that by basing the $12 million settlement on drivers’ claims for mileage reimbursement from May 2012 to November 2015, she didn’t account for the company’s skyrocketing growth through the middle of February. Chhabria figured that the actual value of the reimbursement sought is at least $126 million, and that other potential claims might make the settlement worth about $170 million.

Miles ‘Doubled’

“So you’re saying that the amount of miles that Lyft drivers drove between 2012 and November 2015 doubled over the course of three months?” Chhabria asked Shannon Liss-Riordan, the drivers’ lawyer, at the hearing.

Yes, she said, acknowledging that data provided by Lyft showed that its business in California had grown as fast in 90 days as during the three previous years.

In his ruling Thursday that encouraged the company and Liss-Riordan to try drafting a new agreement that sweetens the pot for drivers, Chhabria said the modest non-monetary benefits in the settlement don’t make up for the “serious defects in the monetary aspect.”

“We’re disappointed in the preliminary ruling,” Chelsea Wilson, a spokeswoman for Lyft, said in an e-mail. “We believe we reached a fair agreement with the plaintiffs and are currently evaluating our next steps.”

Liss-Riordan said she hopes the settlement can be improved to meet the judge’s concerns.

‘To Trial’

“If not, we look forward to taking this case to trial as well,” she said in an e-mail. Liss-Riordan also represents the Uber drivers suing that company in the same courthouse before a different judge.

A third of the $12.25 million Lyft settlement fund was designated for attorney fees.

The judge rejected criticism from the Teamsters union that the settlement forfeits the main goal of the drivers’ lawsuit -- to force Lyft to treat them as full-fledged employees rather than contractors. The accord announced in January didn’t make any change to Lyft’s classification of its California drivers as independent contractors.

“The Teamsters’ position is based largely on policy arguments better made to the legislative and executive branches,” Chhabria said. “And it disregards the risks the drivers would face if they took their case to trial.”

The Teamsters applauded Chhabria’s ruling, noting that the judge called the union’s concerns about employee classification “good arguments.”

‘Seeking Justice’

“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,” Rome Aloise, Teamsters International Vice President and President of Teamsters Joint Council 7, said in a statement.

Charlotte Garden, an associate professor at Seattle University School of Law, said she read Thursday’s ruling not as implying the case should go to trial, but as offering guidance “for an acceptable settlement” that accurately accounts for drivers’ mileage through the date that the judge approves the accord.

“Overall, this order is probably good news for class members, because it all but tells the parties that settlement is appropriate, but that the settlement should be for a higher -- and more clearly explained -- dollar amount,” she said.

The case is Cotter v. Lyft Inc., 13-cv-04065, U.S. District Court, Northern District of California (San Francisco).

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