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Lyft reportedly saved $126 million by refusing to classify drivers as employees

Lyft reportedly saved $126 million by refusing to classify drivers as employees


The curse of the independent contractor

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According to newly published court documents, Lyft would owe its drivers $126 million in reimbursement expenses for the last four years if the ride-hail service classified them as employees rather than independent contractors. The court documents, which were first reported by Reuters, provide a rare glimpse into the huge amount of cash that companies like Lyft and Uber save by refusing to classify its drivers as employees.

"hypothetical and misleading"

Lyft drivers would have recouped about $835 each, if the company applied the standard mileage reimbursement rate set by the US government. Instead, drivers assume those costs themselves, as well as gas, insurance, and maintenance for their vehicles. But Lyft says the documents are "hypothetical and misleading" because some drivers work "only a handful of hours," and would be owed far less. Lyft cites a recent survey that says over 80 percent of its drivers prefer to be independent contractors because of the flexibility it affords.

Lyft has raised $1.4 billion to date, and is valued at $5.5 billion — much less than Uber, which at $62.5 billion is the most valuable startup in Silicon Valley. Leaked financial documents obtained by Bloomberg last year show that Lyft is struggling to make money: the company lost $127 million in the first half of 2015 on $46.7 million in revenue.

Both Lyft and its much larger rival Uber face class action lawsuits from drivers challenging their classification as independent contractors. Lyft recently settled its lawsuit, agreeing to shell out $12.25 million in compensation to its drivers, while maintaining the right to classify them as non-employees. Each of the 150,602 drivers included in the case will receive $56 under the settlement, after attorneys' fees and other expenses, court documents say.

The court documents detailing the estimated reimbursement expenses were requested by the judge who is overseeing the payout of Lyft's settlement. Meanwhile, Uber's attempts to get its class action suit dismissed have failed, and the case is expected to go to trial this June.