Opposition to Lyft’s $12.25 Million Independent Contractor Misclassification Settlement May Cause Court to Nix the Deal

by Pepper Hamilton LLP
Contact

Papers were filed in court today formally opposing the deal that Lyft agreed to with the lawyers representing over 100,000 Lyft drivers in their class action brought in the federal court in San Francisco.  The objectors were five Lyft drivers and two Teamsters union councils that are seeking to represent certain of the class members, if they are ruled to be employees.  The Lyft class action settlement, which is subject to judicial approval by federal judge Vince Chhabria, would require Lyft to pay its drivers in California and their lawyers $12.25 million, yet would allow Lyft to maintain its independent contractor business model.  Will the federal court judge overseeing this class action nix the deal based on the objections filed today?  A fairness hearing on the proposed settlement is scheduled for March 24, 2016, but approval of the proposed settlement is hardly a sure thing, as noted in the “Analysis” below.

The background of the lawsuit against Lyft was summarized in our March 12, 2015 blog post that focused on the court’s denial of Lyft’s motion for summary judgment seeking dismissal of the class action lawsuit.  Lyft’s motion was based on its argument that the drivers are independent contractors as a matter of law. The court held that because some facts supported IC status whereas other facts supported employee status, the ultimate issue of the drivers’ status as either employees or independent contractors was an issue of fact, not law, and would have to be decided by a jury.

Instead of expending millions of dollars trying the case before a jury and litigating it for years, Lyft chose to mediate its dispute with the lawyers representing the proposed class. This was a different strategy than the one taken by Uber, which is preparing for a lengthy trial this coming summer, as we commented in a recent blog post. Ultimately, the mediator facilitated a settlement between Lyft and the drivers’ counsel  that many in the industry have praised as a good deal for Lyft – if it is approved by the court. But, as we discuss in our “Takeaways” below, it may be a too good deal for Lyft unless it takes further steps to enhance its independent contractor compliance.

The Settlement Terms

The principal terms of the settlement are set forth in court papers filed by the lawyers for the class of drivers.  Those terms include:

  • Payment of $12.25 million to the drivers and their counsel, who will be paid 30% of the proceeds. The average payment to drivers will be modest, less than $1,000 per driver to cover their out-of-pocket car expenses, allegedly unpaid tips, and any unpaid overtime and minimum wages.
  • Lyft will no longer be able to deactivate drivers at will, for any reason, and instead will only be able to deactivate drivers for specific reasons or after providing notice and an opportunity to cure. Drivers deactivated will be able to arbitrate their deactivation, with Lyft paying for the fees of arbitration. (Evidently, the drivers may have to pay their own legal fees if they choose to hire counsel to represent them at the arbitration.)
  • Lyft will provide additional information about potential passengers to drivers prior to the driver accepting any ride request, which presumably will assist drivers in deciding whether to accept a ride request.
  • Lyft will create a “favorite” driver option where drivers who are designated by riders as a “favorite” are entitled to certain benefits.
  • In exchange for the above, all class members (except those who “opt out” of the settlement) will waive all existing claims they may have against Lyft arising from their alleged misclassification as independent contractors. This appears to include claims for periods prior to the time covered by the lawsuit.
  • In further exchange, all class members (except those who “opt out”) will be enjoined from maintaining or commencing a legal proceeding in another forum regarding their independent contractor status. This may include all claims for unemployment insurance and workers’ compensation benefits.

The Opposition Filed Today

The objections filed today state that the Teamsters unions are currently involved in organizing and seeking to represent Lyft drivers and other transportation workers in the “gig economy.” They argue that the settlement “threatens to interfere with the Teamsters’ current representation of Lyft drivers.”  The Teamsters refer the court to the unfair labor practice charge it filed with the National Labor Relations Board, where the unions claim that Lyft is denying drivers their right to organize and exercise their rights under federal labor law. In addition, the objectors contend that the proposed settlement is inadequate in terms of monetary relief to the class and to the State of California for certain penalties Lyft would be subjected to if it were found to have misclassified drivers as independent contractors.

In sum, they argue that “[i]n exchange for modest payments to individual drivers, the settlement leaves, approves, and authorizes the ongoing and continuing violation of California and federal labor law, namely, the misclassification of drivers who are regularly engaged to drive Lyft’s customers, while seeking judicial approval of illegal waivers of drivers’ statutory rights.” Cotter v. Lyft, Inc., No. 3:13-cv-04065-VC (N.D. Cal., Mar. 15, 2016).

Analysis 

The overwhelming number of proposed class action settlements are approved by the presiding judge.  But the objections filed today raise significant legal issues – quite different from those typically raised by objecting parties.

Yet, they do not raise as many questions as did the court itself in a February 11, 2015 order. There, Judge Chhabria required the drivers’ counsel to respond to a number of his specific concerns, including:

  • the amount each driver would receive, on average, under the settlement versus the amount each class member would be eligible to recover for his/her reimbursement of expenses claim, on average, if the plaintiffs prevailed at trial, using the Internal Revenue Service’s standard mileage reimbursement rate;
  • the disparity between the proposed settlement, which would “move the drivers closer to independent contractor status”, whereas the lawsuit was plainly intended to change their status to employees;
  • whether there are any factors specific to Lyft’s business model that precluded it from classifying drivers as employees or from providing drivers with some of the protections employees receive under California law.

Based on the new objections and the court’s own concerns, the result of the hearing scheduled for March 24, 2016 on the fairness of the proposed settlement is anything but certain. The court could approve it, require the parties to modify the terms, or reject it. The odds of approval appear to be considerably less than what they would be in a typical class action fairness hearing.

Takeaways

The structural changes that Lyft seems prepared to make to its independent contractor relationship with drivers will undoubtedly “move the drivers closer to independent contractor status,” as the court itself recognized.

We previously stated in a prior blog post that most companies using ICs to service customers, including those in the sharing or gig economy, have not been structured, documented, and implemented in a manner that maximizes compliance with state and federal IC laws – and those businesses would be wise to restructure, re-document, and re-implement their IC relationships to enhance their compliance with such laws. As part of the proposed settlement reached between Lyft and the lawyers representing the drivers, that is precisely what Lyft appears willing to do to a limited extent, without bankrupting the company – assuming the court approves the proposed settlement.

Yet, even if these changes are implemented in California and the other states where Lyft operates, they may not, by themselves, be sufficient to forestall new lawsuits or insulate the company from IC misclassification liability.

In the court’s decision to deny summary judgment to Lyft, Judge Chhabria not only focused on Lyft’s unbridled right to terminate or deactivate drivers, but also on a number of other facts that favored employee status.  For example, he pointed to the Lyft “Rules of the Road,” which gave drivers a list of “rules to live by.” These included “No talking on the phone (unless it’s the passenger)”; “Greet every passenger with a big smile and fist bump”; “Do not request tips”; and “Go above and beyond with good service such as helping passengers with luggage or holding an umbrella for passengers when it’s raining”.  Although Lyft replaced its “Rules of the Road” with “FAQs”, the court noted that they still instructed drivers about such things as the cleanliness of their vehicles, the use of GPS navigation while driving, not smoking in their vehicles, and not asking passengers for their telephone numbers.  The judge also found that Lyft’s monitoring of its drivers’ performance and solicitation of ratings from passengers about the drivers’ performance also favored employee status.

While “mov[ing] the drivers closer to independent contractor status” is certainly a positive step by Lyft, it would be prudent to address the other concerns expressed by Judge Chhabria as well as dozens of other factors bearing on the issue of independent contractor status. Moving the needle in the right direction may not be sufficient. As the co-publisher of this blog, Richard Reibstein, was quoted in a Los Angeles Times article by Tracey Lien, while the settlement may put to rest one lawsuit against the company, “it doesn’t mean Lyft is in the clear. In fact, many states have more stringent tests for independent contractor status than California, and there’s nothing stopping another lawyer from filing a similar lawsuit in [the future in] California”. The article continued: “‘Lyft would be well-served to reevaluate its structure and documentation,’ Reibstein said, ‘because just because you exit one lawsuit does not mean that there won’t be another coming right down the pipe tomorrow.’”

One way in which companies can stress-test their level of IC compliance is through IC Diagnostics™, a process that examines the level of compliance with applicable IC laws and then restructures, re-documents, and re-implements IC relationships in a manner that minimizes IC misclassification exposure.  This process can be applied in a customized fashion consistent with a company’s business model.

Businesses like Lyft that can wisely turn legal IC skirmishes, such as the present lawsuit in California, into positive changes in its IC relationships can be the envy of others in the sharing economy that use ICs – but that is far more likely if Lyft undertakes a number of other steps to further enhance its IC compliance.

Written by:

Pepper Hamilton LLP
Contact
more
less

Pepper Hamilton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.