In 2020, the state of California initiated legal action against Uber and Lyft for incorrectly classifying their workers as independent contractors.
Lyft has agreed to pay $272.5 million to settle a lawsuit brought forth in May 2020, which claimed that both Lyft and Uber were misclassifying their employees as independent contractors. This announcement was made by California Attorney General Rob Bonta.
The lawsuit came after the implementation of Assembly Bill 5, which officially categorized gig workers as employees, prior to the changes introduced by Proposition 22.
If the court approves the settlement, Lyft will allocate $272.5 million in penalties, with approximately $237,075,000 earmarked for compensating workers for unpaid minimum wage and benefits. Compensation will be calculated based on the hours worked and mileage between April 5, 2016, and December 15, 2020.
The 2019 passage of Assembly Bill 5 introduced the “ABC test,” a framework businesses must follow to classify workers as independent contractors instead of employees. The initial provisions of the bill stipulated that Lyft and Uber drivers should be recognized as employees, entitled to a minimum wage and other protections. In response to concerns about their business models, both companies supported Prop 22 in November 2020, which modified the ABC test and allowed gig workers to remain classified as contractors while providing certain benefits like healthcare subsidies.
Though some workers have contested the validity of Prop 22, the California Supreme Court upheld the law in 2024. While Lyft’s settlement addresses the state’s allegations and represents a significant achievement for gig workers, Uber’s part in the lawsuit is still pending resolution.
