Lyft has agreed to pay $272.5 million to settle allegations that it misclassified California drivers as independent contractors rather than employees between 2016 and 2020. The proposed settlement still requires approval from the San Francisco Superior Court and does not require Lyft to change how it classifies drivers today.
The case stems from an August 2020 lawsuit filed by the California Labor Commissioner’s Office. State officials alleged that Lyft’s classification deprived drivers of minimum wages, overtime, paid sick leave, expense reimbursement, timely wage payments, and other employment protections.
Most Of The Settlement Will Go To Drivers
Under the agreement, 87% of the settlement will go directly to drivers, according to the California Labor Commissioner’s Office. More than 1,600 drivers who filed wage claims through the agency will receive additional payments after the office agreed to redirect its $5.45 million share of penalties to those workers.
Lyft said in its regulatory filing that settling would reduce legal uncertainty and avoid the cost and distraction of continued litigation. The agreement does not represent an admission of liability, and Lyft can make payments over four years, with 5% simple interest applying after the first year and capped at $12.4 million.
The company previously recorded a $210 million accrual related to the dispute during the fourth quarter of 2025. Lyft said the settlement does not change its third-quarter 2026 guidance for Gross Bookings, Adjusted EBITDA, or Adjusted EBITDA margin.
Settlement Covers The Period Before Proposition 22
The settlement covers alleged violations from April 6, 2016, through December 15, 2020. During that period, California was addressing whether workers for app-based services should be treated as employees or independent contractors.
Assembly Bill 5, passed in 2019, established stricter requirements for companies classifying workers as independent contractors. Lyft, Uber, and other gig economy companies continued treating their drivers as contractors, leading to actions from state and local authorities.
California voters subsequently approved Proposition 22 in November 2020, establishing a separate classification framework for qualifying app-based transportation and delivery drivers. Because that framework took effect after the period covered by the lawsuit, the settlement does not require Lyft to reclassify drivers or provide relief for work performed after December 15, 2020.
Lyft maintains that its drivers were properly classified under the law and said California voters affirmed drivers’ contractor status through Proposition 22. The settlement resolves Lyft’s part of the coordinated litigation, while Uber continues to face similar allegations from the California Labor Commissioner’s Office.
Featured image credits: Wikimedia Commons
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