Lyft, Inc. has reached a settlement in a class action lawsuit brought by drivers that preserves the drivers’ classification as independent contractors rather than employees. Although Lyft agreed to pay $12.25 million and change some of its terms of service, the agreement does not require the San Francisco ride-sharing company to convert its drivers to employees.

Plaintiffs, who sought to represent a class consisting of all California drivers who gave rides on the Lyft platform from May 2012 to the present, had alleged that they were employees, rather than independent contractors, which could have entitled them to overtime, payment for missed meal breaks, and reimbursement for expenses such as gas and car maintenance.  However, Lyft has consistently maintained that the vast majority of Lyft drivers preferred the flexibility that independent contractor status provides.  The settlement represents a compromise that could provide a roadmap as sharing companies grapple with how to provide flexibility to users who want to control when and how long they work while nudging arcane employment laws designed for the 9-5 workday into the era of the “gig” economy.

Under the agreement, Lyft will modify its terms of service in several respects, including that 1) drivers can no longer be terminated at will and instead can be dismissed for certain specified violations of Lyft’s terms; 2) drivers facing deactivation will be warned before they are removed from the system; 3) drivers will be able to bring claims regarding payment and termination disputes in arbitration at Lyft’s expense after paying a small fee; 4) riders will be able to designate certain drivers as “favorites”; and 5) drivers will have broader access to rider information, including passenger ratings, time to pick up and more detailed passenger profile information.  The parties have submitted the agreed upon modifications as part of their motion for preliminary approval of the settlement agreement.

The settlement is subject to approval by a Judge Chabria, and would, if approved, certify a class for settlement purposes.  A hearing on preliminary approval is scheduled for February 18, 2016.

The settlement comes as sharing companies are facing growing pains—and lawsuits—while they try to build out innovative business models amid an uncertain legal landscape. Other gig economy companies such as courier service Shyp, grocery delivery service Instacart, and valet service Luxe Valet, have converted their contractors to part-time employees in the wake of legal action. Meanwhile, Lyft rival Uber remains embroiled in a lawsuit also brought by former drivers in U.S. District Court in Northern California (and the same attorney that brought the Lyft case). Unlike in Lyft’s case, a limited class of Uber drivers has already been certified (see http://bcsharinglaw.com/federal-court-broadens-class-and-invalidates-court-approved-arbitration-agreement-in-uber-employee-suit/), and trial is set to begin on June 20, 2016.

The Lyft case is Cotter v. Lyft, 3:3 cv-04065-VC in the U.S. District Court for the Northern District of California.