U.S. judge questions Lyft settlement over driver benefits

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A smartphone app for Lyft drivers is seen during a photo opportunity in San Francisco, California February 3, 2016.  REUTERS/Stephen Lam
A smartphone app for Lyft drivers is seen during a photo opportunity in San Francisco, California February 3, 2016.

Reuters/Stephen Lam

A U.S. judge questioned on Thursday whether a proposed class action settlement between Lyft and its California drivers is fair and raised concerns that the $12.25 million payment offered by the ride-hailing service might be too low.

The 2013 lawsuit brought against Lyft by California drivers contended they should be classified as employees and therefore entitled to reimbursement for expenses, including gas and vehicle maintenance. The drivers, who are currently independent contractors instead of employees, pay those costs themselves.

At a hearing on Thursday, U.S. District Judge Vince Chhabria in San Francisco said he was concerned that the proposed settlement does not reflect the company’s explosive growth in California over the past few months.

Employment status is critical for the so-called on-demand technology companies. The case involving Lyft and another class action lawsuit against larger rival Uber have been closely followed because a determination that workers are employees rather than contractors could affect valuations of other startups.

Chhabria, who did not rule from the bench, must decide whether the deal is fair for drivers. He will likely issue a preliminary ruling sometime in the next few weeks.

Lyft agreed to settle the class-action lawsuit in January. Under the proposed deal, drivers would receive an average of $56 each after attorneys’ fees and other expenses, documents show.

During settlement negotiations, attorneys for the plaintiffs received data from Lyft about its driver population through last June. Based on that, they valued a potential claim for expense reimbursement for drivers at $64 million, and then negotiated the $12.25 million settlement.

However, Lyft later provided updated figures covering the period through February. That shows California Lyft drivers would have been entitled to an estimated $126 million in expense reimbursements had they been employees rather than contractors.

Drivers would have recouped an average of $835 each under a standard rate for mileage reimbursement set by the U.S. government, court filings show.

“Shouldn’t you have estimated what the value would be through the entire class period?” Chhabria asked.

Shannon Liss-Riordan, an attorney at law firm Lichten & Liss-Riordan representing the plaintiffs, acknowledged Lyft’s growth. “Lyft has been exploding over the last few months,” she said.

However, Liss-Riordan also argued that other parts of the deal benefited drivers, including a provision that prevented Lyft from summarily terminating drivers.

Lyft attorney James Slaughter said the deal was “beyond fair.”

The Teamsters union and five drivers had formally objected to the deal, saying it short changed drivers by keeping them as contractors.

However, Chhabria rejected that argument. Even though drivers would remain contractors under the settlement, Chhabria said it would be risky for drivers to proceed with the case.

A jury could ultimately rule that drivers are contractors and then they would get nothing.

“I just don’t understand why they can’t reach some type of settlement agreement, short of reclassification, in light of that risk,” he said.