In a significant development concerning Cotter v. Lyft, a major federal class action challenging the classification of gig economy workers as independent contractors, Reuters reports that Judge Vince Chhabria has rejected a proposed $12.25 million settlement.  Under the proposed settlement drivers would have received an average of $56, while for mileage reimbursement alone (notwithstanding other benefits of employee status), employee status is estimated to be worth an average of $835 a driver in damages.  Judge Chhabria’s Order can be found here.

Judge Chhabria rejected the proposed because he found it monetarily inadequate:

The motion for preliminary approval is denied because the settlement agreement does not fall within the range of reasonableness.  Most glaringly, counsel for the plaintiffs pegged the $12.25 million settlement figure primarily to the estimated value of the drivers’ claim for mileage reimbursement.  But the lawyers estimated the value of the reimbursement claim to be $64 million, when in fact, using their own methodology, it is worth more than $126 million.  The drivers were therefore shortchanged by half on their reimbursement claim alone.  Moreover, counsel’s treatment of the drivers’ claim for penalties under the Private Attorneys General Act (“PAGA”) was arbitrary, and may have shortchanged the State of California (not to mention the drivers) even more.  The modest nonmonetary relief set forth in the agreement does not come close to making up for these serious defects in the monetary aspect of the settlement.

At the same time, Judge Chhabria rejected the contention of objectors (as expressed by the Teamsters) that no settlement should be approved unless it provides for the reclassification of Lyft drivers as employees.  He suggested that a revised settlement with an increased payment would be approved, even if drivers do not obtain reclassification as a result:

However, many of the Teamsters’ objections to the agreement are not well-founded.  In particular, the Teamsters argue that the Court should not merely reject this agreement, but any agreement that fails to reclassify Lyft drivers from “independent contractors” to “employees.”  The Teamsters’ position is based largely on policy arguments better made to the legislative and executive branches.  And it disregards the risks the drivers would face if they took their case to trial.  Accordingly, if the parties wish to negotiate a new agreement that addresses the defects identified in this ruling, the Court would, at least on the current record, preliminarily approve that agreement even if it fell short of requiring Lyft to classify its drivers as employees.

Attorneys for both parties will have until May to propose a revised settlement proposal.  OnLabor will continue to monitor the suit and other developments concerning labor and the gig economy.