Cotter v. Lyft, Inc.

• Decision Date: 07 April 2016
• Docket Number: Case No. 13–cv–04065–VC
• Citation: 176 F.Supp.3d 930
• Parties: Patrick Cotter, et al., Plaintiffs, v. Lyft, Inc., et al., Defendants.
• Court: U.S. District Court — Northern District of California

176 F.Supp.3d 930

Patrick Cotter, et al., Plaintiffs,

v.Lyft, Inc., et al., Defendants.

Case No. 13–cv–04065–VC

United States District Court, N.D. California.

Signed April 7, 2016

Matthew David Carlson, Carlson Legal Services, San Francisco, CA, for Plaintiffs.

Alex Santana, Christopher M. Ahearn, Thomas Michael McInerney, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., San Francisco, CA, for Defendants.

ORDER DENYING MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT

Re: Dkt. No. 169

VINCE CHHABRIA, United States District Judge

The plaintiffs in this case—three people who have worked as Lyft drivers—move for preliminary approval of a class settlement agreement they reached with Lyft. Five other Lyft drivers, along with the Teamsters—a labor union that is seeking to organize Lyft drivers—have filed objections to the agreement, and urge the Court to deny the motion for preliminary approval.¹

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.

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.

I. BACKGROUND

Patrick Cotter and Alejandra Maciel used to drive for Lyft in California. They filed this suit contending that Lyft violates California law by classifying its drivers as “independent contractors” rather than “employees.” This distinction matters a great deal, because under California law, employees get a number of benefits and protections that independent contractors don't. For example, California law guarantees employees a minimum wage, extra pay for working overtime, and workers' compensation benefits. The original theory behind this distinction, in large part, was that independent contractors don't need those kinds of across-the-board safeguards, because their special skills give them bargaining power and the ability to negotiate their own set of contractual benefits and protections. Employees, on the other hand, need a minimum floor of legal safeguards to prevent employers from taking undue advantage of their inferior bargaining position.

As applied to a case involving drivers, perhaps the most significant legal protection enjoyed by “employees” but not “independent contractors” is the right to be reimbursed for expenses incurred in performing the work. The law prevents companies from passing on to employees the cost of doing business. Lyft drivers spend a lot of money on gas, and their vehicles undergo significant wear and tear. If the drivers are employees, the law would require Lyft to reimburse them for these expenses. If the drivers are independent contractors, they would be left to negotiate their own terms with Lyft regarding reimbursement (if, that is, they have any negotiating power to speak of).

Cotter and Maciel brought their suit as a proposed class action. They originally sought to represent everyone throughout the country who has ever driven for Lyft since the company's inception in May of 2012. However, California's wage and hour laws don't apply to people who work exclusively in other states, so the Court ruled that the plaintiffs may only seek to represent drivers who have worked for Lyft in California. Dkt. No. 51; Cotter v. Lyft, Inc., 60 F.Supp.3d 1059 (N.D.Cal.2014). On behalf of that proposed class of California Lyft drivers, Cotter and Maciel seek injunctive relief—namely, a court order requiring Lyft to classify its drivers as employees, and to provide the drivers with all the benefits and protections that California law confers upon employees. Cotter and Maciel also sought various forms of monetary relief for the drivers—primarily reimbursement of expenses the drivers had incurred while working for Lyft, but also damages and penalties for things like failure to pay the minimum wage, failure to pay overtime, failure to provide paid meal and rest breaks, and failure to pass on tips received from riders.

The parties and the Court agreed on a case schedule that is somewhat different from the typical class action. In most class actions, the first important milestone is a motion by the named plaintiffs for class certification. In adjudicating a motion for class certification, a court must decide whether the case is appropriate for class action treatment, and whether the named plaintiffs are qualified to represent the class in the litigation. Then, assuming a class is certified, the case moves on to the “merits stage,” where the parties litigate (and the court or a jury decides) who wins. In this case, the parties agreed that the Court should first consider whether the named plaintiffs themselves, Cotter and Maciel, were employees or independent contractors as a matter of law. A legal determination that they were independent contractors would end the case, avoiding the need to put Lyft through costly and time-consuming class certification proceedings. A determination that Cotter and Maciel were employees would require the case to continue, with the Court deciding whether the case could proceed on a classwide basis (and if it could, with the Court simply entering judgment in favor of the whole class and against Lyft).

The parties thus filed cross-motions for summary judgment on the question whether Cotter and Maciel were employees or independent contractors as a matter of law. The Court denied both motions and ruled that, because there is no clear legal answer to this question, it would be for a jury to decide whether Cotter and Maciel were employees or independent contractors. Dkt. No. 94; Cotter v. Lyft, Inc., 60 F.Supp.3d 1067 (N.D.Cal.2015). The Court explained that although Cotter and Maciel were like independent contractors in some ways (for example, they could control their own schedules), they were like employees in other ways (for example, Lyft retained the right to control how Cotter and Maciel performed their jobs when they did choose to work, and Lyft retained the right to terminate them for any reason). In this ruling, the Court also flagged a key issue likely to affect a jury's decision about how to classify a driver—whether he drove regularly and full time, or sporadically and part time. A person who drives regularly and full time, the Court noted, is likely relying on Lyft as his primary source of income, and therefore looks more like the type of person California's wage and hour laws were designed to protect. A person who drives sporadically for Lyft, as one of many odd jobs for different clients, arguably looks more like an independent contractor.

Following this ruling, the parties decided to participate in a series of settlement conferences with a magistrate judge of this court. The Court referred them to Magistrate Judge Donna Ryu, who is an expert in wage and hour law. And the Court agreed to delay class certification proceedings while the parties negotiated. Meanwhile, the plaintiffs filed an amended complaint in which they added another driver, Jeffrey Knudtson, to the lawsuit as a named plaintiff. In contrast to Cotter and Maciel, who drove for Lyft sporadically and part time before being terminated, Knudtson continues to work for the company and alleges he drives full time.

II. THE SETTLEMENT AGREEMENT

After several settlement conferences, the parties reached an agreement, subject to approval by this Court. The agreement contemplates that a class will be certified (consisting of all people who have driven for Lyft at least once in California), that notice of the settlement will be sent to the class, and that any class member who does not opt out of the settlement will be bound. The terms of the agreement are discussed more fully in Sections IV and V, but they are summarized briefly here.

The agreement has a prospective component that would somewhat alter the relationship between Lyft and its drivers. Currently, Lyft preserves the right to terminate its drivers (that is, deactivate them from the Lyft platform) for any reason and at any time. Under the proposed settlement, there would be a laundry list of restrictions and requirements imposed on drivers by contract, and Lyft would have the right to terminate drivers only for breaching the contract. In certain circumstances, a driver would be entitled to receive notice from Lyft of the termination decision and given an opportunity to respond. If Lyft is unsatisfied by the response and maintains its decision to terminate the driver, the driver could take the breach-of-contract dispute to arbitration, with Lyft paying all arbitration-specific fees. And even in termination...