Lyft’s $270 Million Misclassification Suit

Background

On October 1, 2026, the California Labor Commissioner’s Office announced that it had settled a lawsuit it had brought against the popular rideshare app Lyft, with Lyft paying a record $272.5 million dollars to California rideshare drivers over employee classification issues.

Lyft is one of the two largest rideshare services in America, and there are over 800,000 rideshare drivers across the state. In recent years, rideshare apps have largely overtaken taxis as the preeminent on-demand driver service in the United States- it is estimated that there are 5 rideshare drivers to every 1 taxi. While taxis operate under strict regulations regarding labor supply as well as mileage and per-trip rates, any eligible driver can become a rideshare driver, and prices are set algorithmically by the given app.

Lyft’s Misclassification Problem

California’s Proposition 22, passed in November 2020, created a new employee classification system for rideshare employees; Prop 22 mandated that apps offer eligible drivers certain benefits and protections under the law while remaining independent contractors. This suit, however, was regarding alleged employee misclassification from April 2016 until Prop 22 was passed into law.

The suit alleged that during this period, Lyft classified its drivers as independent contractors, despite being required by state law to classify them as employees. California’s Labor Commissioner’s Office alleged that:

• Drivers were not guaranteed minimum wage or overtime pay
• Lyft did not pay drivers meal break penalties
• Lyft drivers were not properly reimbursed for mileage and other business expenses
• Drivers did not receive timely and accurate wage statements and payments
• Lyft did not provide drivers with paid sick time and other similar benefits.

Over the course of those four years, over 1,600 Lyft drivers filed wage claims with the Labor Commissioner’s Office. After an extended investigation and settlement negotiations, Lyft agreed to pay $272.5 million dollars, which is the single largest wage-and-hour settlement in California’s history. 

Eligible Lyft drivers from this period will be eligible to receive restitution payments, as well as interest and overtime penalty compensation. Additionally, the Labor Commissioner’s Office will divert their portion of the penalties (nearly $5.5 million) as an additional payment offering to the drivers that originally filed the claims with their office. After attorney’s and administrative fees, over $237 million will be awarded directly to drivers through a third-party administrator.

Independent Contractors vs. Employees

Misclassifying employees as independent contractors is one of the most common (and most expensive) mistakes a business can make. In California, classification is determined by whether or not a role passes the “ABC Test”:

A: Free From Control- This includes considering whether the worker has control over the scope and hours of their work, if and to what extent they are supervised, and if the worker is financially liable for completing their scope of work

B: Outside the Usual Course of Business- If a worker’s contribution to a business is core to the business’ overall success, then they must be an employee; a worker can only be a contractor if their contribution is ancillary to the business’ overall core function

C: Customarily Engaged in Independently Established Trade- This includes whether a worker is able to offer their services to others and is not necessarily dependent on any one business for their income, if the worker has their own place to work other than the business’ office, and whether the worker has the ability to set their own rates and bill the business directly

If a worker’s hours, scope, or pay is controlled by the business, the worker is unable to offer their services to other businesses, or the worker’s contributions are core to the business’ success, that worker must be classified as an employee, or the business can face repercussions.

In California, the penalties for misclassifying employees as independent contractors can add up fast. Potential punishments for misclassification include:

• Fines of $5,000 to $25,000 per incident
• Backpay, including overtime pay and interest
• Reimbursement to the employee for taxes and benefits payments
• Reimbursement to the state for unemployment and workers’ compensation insurance

Ensuring You Are Properly Classifying Employees With Guardian HR

Properly classifying contributors to a business is one of the hardest parts of managing a workforce, and the consequences of getting it wrong can add up fast. Guardian HR is here to help take the guesswork out of classification.

When you sign up with Guardian HR, we onboard you with a dedicated HR Consultant who learns your business inside and out, and can guide you on classification decisions. For more complex issues, we offer access to expert employment law guidance through our partnership with Fisher Phillips. To learn more about what Guardian HR can offer your business, Take a Tour today.