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The bullet that Lyft just dodged is still coming for Uber

Lyft won't have to reclassify its drivers as employees, but Uber still might

Spencer Platt/Getty Images

Lyft will not have to reclassify its drivers as employees after reaching a settlement yesterday, in which it agreed to pay $12.25 million extra in compensation and benefits. Uber is facing a similar lawsuit from its drivers, but a quirk in the litigation could make the outcome way worse for the world's biggest ride-hail company.

In challenging their status as independent contractors, Lyft's drivers were unable to bring a class action lawsuit against the app company thanks to an arbitration clause contained in their contract with Lyft. As such, the drivers had to settle for promises from Lyft to reimburse some of their expenses and to warn them before they were about to be deactivated for poor customer ratings.

"Global changes" at Lyft were not possible

The drivers weren't able to achieve "global changes" at Lyft, but those changes are still possible at Uber, explained Shannon Liss-Riordan, the attorney representing both Lyft drivers and Uber drivers in their respective cases.

"In the Uber case, the court has certified the case as a class action on behalf of almost all Uber drivers in California, and the court was able to do that because it held Uber's arbitration agreement to be unenforceable," she said in an email. "In the Lyft case, we do not have the same arguments we can make that led us to victory on this point in the Uber case."

In other words, the clause in Uber's contract with its drivers that would have prevented a class action lawsuit was ruled "unenforceable" by a federal judge, meaning the case Uber faces will be much more challenging. Indeed, in recent hearings, Judge Edward Chen has dealt a series of setbacks to Uber as he chided the ride-hail company's attempts to avoid facing its drivers' complaints.

Drivers involved in the lawsuit are seeking to be reclassified as full-time employees of Uber, rather than independent contractors. They say that because Uber controls important parts of their work, like fares and who can and can't work on the platform, they should be entitled to certain protections and benefits. Uber says this would subvert the very nature of its business and dramatically increase the cost of doing business. It argues that a majority of its drivers prefer Uber because of the flexibility it affords them.

How much will Uber have to pay its drivers?

The class action lawsuit will go to trial in federal court in San Francisco June 20th and is set to last five weeks. Critics of Uber, as well as interested parties in Silicon Valley, Washington, DC, and beyond, are watching the case closely to see if it changes how employees in the gig economy are defined. Uber has argued the case is "manifestly erroneous."

Liss-Riordan estimates that the $12.25 million Lyft agreed to pay its drivers was just one-fifth of what they could have won had the case gone to trial on a classwide basis. Does that mean Uber will have to pay its drivers $61.25 million to settle its case? Not at all. For one, Uber is a much larger company than Lyft with many more drivers, so the assumption is the penalty would be exponentially larger if Uber tries to settle. Also, Liss-Riordan has made it clear that what she is seeking is not so much financial redress, but the redefinition of how the on-demand economy operates.

"As wage and hour employment lawyers, we listen to what concerns our clients bring to us," she said. "In the litigation we are pursuing against Uber, we hear daily complaints from drivers about how they feel Uber has mistreated them (in addition to the misclassification) — in cutting fares without their input, shortchanging them on pay they are owed, and deactivating them for no reason or no legitimate reason.

She continued, "Although this difference does not speak to whether either company has rightly or wrongly chosen to classify its drivers as independent contractors instead of employees, it cements our belief that far more Uber drivers than Lyft drivers are anxious for us to continue pursuing these misclassification claims against Uber."

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