By Lisa Milam-Perez, J.D.
Delaying a hearing on a motion for preliminary approval of a class action settlement resolving a "gig economy" lawsuit brought by Lyft drivers who contended they were improperly classified as independent contractors by the ride-share company, a federal judge in California had too many unanswered questions precluding consideration of the deal, and so requested additional briefing from the parties. Most crucial among them: Did the settlement, in preserving the drivers’ status as independent contractors (albeit with a bit more protection from arbitrary discharge) undermine the very purpose of the litigation? (Cotter v. Lyft, Inc.
, February 11, 2016, Chhabria, V.).
The drivers asked
the court to approve a proposed settlement bringing their California Labor Code class action suit to a close. Under the deal, Lyft would provide a nonreversionary payment in the amount of $12.25 million, along with "forward-looking" nonmonetary relief.
How much left after the lawyers?
The $12.25 fund included attorneys’ fees and costs not to exceed 30 percent of the gross settlement fund. Counsel’s costs are folded in to the 30 percent figure and are not separately recoverable. (While a 30 percent fee falls above the Ninth Circuit’s 25 percent benchmark, the plaintiffs argued that the fees were "well-justified by the novelty and complexity of litigating one of the first "sharing economy" cases.") But if plaintiff’s counsel are awarded the amount requested ($3.675 million, specifically), how much money will each proposed class member be eligible to recover, on average? The plaintiffs didn’t say. Thus, the court requested they identify what the proposed class members overall would stand to recover, and also to break down that figure as to the two subgroups created by the settlement: (1) class members who drive more than 30 hours per week, and (2) class members who drive less.
How many full-time drivers?
The class members who spent 30 hours or more per week driving for Lyft, who arguably had the strongest claims on the merits, would receive larger payments than those who provided fewer Lyft rides. But the plaintiffs did not explain how many of the proposed class members were in the 30-hours or over group, and how many fell within the other subgroup. And, "on average, how many total hours did the proposed class members in each group drive during the class period?," the court asked.
What’s the potential payout on the section 2802 claim?
The employees had asserted Labor Code expense reimbursement claims. The plaintiffs’ memoranda in support of its motion for preliminary approval offered the example of the named plaintiff, who stood to recover $335.78 for expense reimbursement. The court wanted to know more, and asked how much each class member would be eligible to recover on the claims were the class action to go to trial (assuming use of the Internal Revenue Service’s standard mileage reimbursement rate?) Again, the court asked for an overall figure and also separate figures broken down into two groups.
What risk of arbitration?
In discussing likely pitfalls if the drivers were to continue litigating the case, the plaintiffs placed considerable emphasis on fears that Lyft would invoke the arbitration clause in its driver contracts. Yet counsel for Lyft stated on the record, on several occasions, that the company would waive its right to invoke arbitration, the court pointed out. "How do these statements affect the likelihood that Lyft could assert its arbitration provision to defeat class certification?"
Under the proposed agreement, Lyft agreed to remove the at-will termination provision from its terms of service and replace it with a provision that allows Lyft to deactivate drivers only for specific delineated reasons (such as poor ratings from customers, safety concerns, etc.) or after notice and an opportunity to cure. The drivers will be able to contend that deactivation for any reason other than those delineated constitutes breach of contract. This restriction on Lyft’s ability to deactivate drivers at-will provides significant protections to Lyft drivers that "they do not currently have and is more in line with an independent contractor relationship," according to plaintiffs’ counsel. However, the court wanted more details on the practical impact of this policy change. Specifically, what evidence is there that the company previously deactivated drivers at will, for reasons other
than those for which the company would now be permitted to terminate them?
The "gig" is up?
Most significantly, despite this proposed change in at-will status, the drivers would still be classified as independent contractors, not employees. Previously, the court had ruled
that the issue of whether Lyft drivers were employees or independent contractors was for a jury to decide; now, though, with the proposed settlement, the drivers would find themselves placed even more squarely on the "independent contractor" side of the equation. But the whole point of the lawsuit was to have Lyft drivers declared "employees" rather than "independent contractors" under California law, the court noted. So isn’t this outcome by the parties here "contrary to the original goal of the lawsuit?" And if so, the court asked further, what does the caselaw say about whether a court can approve a settlement agreement that contravenes the very purpose of the litigation?
The parties also were instructed to brief the court on whether there are other "sharing economy" companies that classify their workers as employees and, if so, "are there any factors specific to Lyft's business model that preclude it from classifying drivers as employees, or from providing drivers with some of the protections employees receive under California law?"