Lyft, a ridesharing service, recently agreed to pay $12.25 million to settle a lawsuit with some California drivers. The drivers had been seeking the right to be classified as employees rather than as independent contractors. Under the deal, Lyft will not reclassify its drivers as employees. Instead, the estimated 100,000 drivers in California will continue to be classified as independent contractors.

Although whether or not a worker is an employee or an independent contractor may not sound like a big deal, it makes a huge difference legally. If a worker is an employee, he or she is entitled to a variety of added benefits that must be provided under state and federal law. For example, employees are entitled to minimum wage, unemployment insurance, workers’ compensation insurance, in some cases health insurance, various job protections, tax benefits, and more. Independent contractors are not legally required to be provided with any of those benefits, but normally make more money per hour than employees in exchange.

Uber, which is Lyft’s chief competitor, is currently litigating a similar case in a federal court in San Francisco, and has recently appealed a judge’s decision to allow a lawsuit in that case to become a class action. The trial in that case is set for June.

Uber’s case is expected to be harder for the company to succeed in than the Lyft case was. The drivers for Lyft had problems getting the case declared a class action – specifically due to language requiring arbitration in their contracts with Lyft. Although Uber’s contract has arbitration language as well, a federal judge has ruled that its arbitration agreement is unenforceable. Since Uber’s drivers have already obtained class action status, they have a larger potential for damages if the case goes to trial. Uber has also indicated it wants to fight this battle long-term, while Lyft agreed to the settlement.

As part of the settlement, Lyft has agreed to take some steps that will result in its drivers being treated more consistent with an independent contractor relationship. The drivers are reportedly somewhat disappointed with their settlement – they were hoping to obtain $70 million in damages at trial, but there were too many risks inherent in the case.

One benefit the Lyft drivers won is that in the future, it will be harder for Lyft to terminate drivers at will. If they are terminated, drivers will have the right to challenge that termination in front of an arbitrator. Normally, independent contractors can be terminated at any time for any reason, while employees can be more difficult to legally terminate in many cases.

Unfortunately, it’s common for employers to intentionally misclassify employees as independent contractors. The employee may not realize the difference until tax time, when they discover they are responsible for writing a check to the IRS, since the employer did not withhold any taxes throughout the year. In most cases, employers would rather have independent contractors rather than employees, but the employer cannot legally decide how to classify a worker. Instead, there are tests for whether a worker is legally an employee or an independent contractor, including who controls the work, how the worker is paid, and whether or not the relationship is expected to continue.

If you believe you are an employee who was wrongly mischaracterized as an independent contractor, you should speak with an employment law attorney. At Liberty Law, Micha Star Liberty and Seth I. Rosenberg believe that no business should purposely mischaracterize their workers as independent contractors. Call the Oakland employment law attorneys at Liberty Law at 510-645-1000 or 415-896-1000 to learn more about your legal rights. We will be happy to provide you with a free consultation on your case.

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