The ride-hailing company's settlement will keep its drivers classified as contractors instead of employees. The case was closely watched by other startups. Fred Katayama reports.
Are they employees or contractors? The ride hailing company, Lyft, settled a class action suit in California that will keep its drivers classified as independent contractors. It agreed to pay $12 million, terminate drivers only for specific reasons instead of at will, and pay arbitration costs. This case was closely watched by startups such as those that offer ride-sharing and maid services. That's because classifying individuals as employees instead of contractors raises their costs, and that could hurt their valuations. Lyft is valued north of $4 billion in its current funding round. Lyft drivers sought to be classified as employees eligible for benefits and get the company to cover expenses such as gas and maintenance. Jackdaw Research chief analyst Jan Dawson said, "It looks like Lyft got off fairly lightly here." But there's more legal action down the road. Rival Uber faces a similar class action suit that is scheduled for a June trial in San Francisco. The attorney representing Lyft's drivers says her firm gets many more complaints from Uber drivers.