Lyft has agreed to pay $272.5 million to settle a lawsuit. The lawsuit alleged that the ride-hailing company violated California law by incorrectly classifying drivers as independent contractors rather than employees.

Lyft stated in a regulatory document that the company believes this settlement will enable it to avoid the costs and disruptions of protracted litigation, and will allow management to continue to focus on achieving its business objectives.

Lyft failed to respond immediately to the request for comment.

This settlement stemmed from a lawsuit filed by the California Labor Commissioner's Office in August 2020. The office accused Lyft of treating drivers as independent contractors, rather than employees as required by state law at that time.

The lawsuit claims that the drivers were deprived of their minimum wage and overtime pay, as well as other benefits and protections afforded to employees, including paid sick leave and timely payment of wages.

California Labor Commissioner Lilia Garc í a-Brower said in a statement, "This settlement is about those workers who spoke up. Their voices contributed to this outcome." She added that LCO will waive their share of the settlement funds and transfer that portion of money to the drivers who filed wage claims.

This settlement still requires approval from a judge and covers alleged violations that occurred between April 6, 2016, and December 15, 2020 – during a time when California was still debating whether workers in the rapidly growing gig economy should be considered independent contractors or employees.

Today, transportation service drivers based on applications such as Lyft and Uber have been classified as contractors since voters passed Proposition 22 in 2020. This proposition provided an exemption for AB Act 5, which was passed in 2019; AB Act 5 requires companies such as DoorDash, Lyft, and Uber to classify gig workers as employees, thereby entitling them to minimum wage, workers' compensation, and other benefits.

Even after the implementation of AB, Lyft, Uber, and other companies that rely on gig workers continued to classify drivers as contractors. Subsequently, the California Department of Labor, the California Attorney General, as well as the district attorneys of Los Angeles, San Diego, and San Francisco, all took legal action. In addition, private lawsuits were filed under California's Private Attorney General Act. The related cases were coordinated for handling at the San Francisco Superior Court in September 2021.

This settlement, at least for Lyft, brings to an end this legal chapter. Uber still faces a similar lawsuit initiated and filed by LCO.