In Lyft’s S-1 this morning, the company laid out the potential consequences for converting its drivers from independent contractors to W-2 employees. This, of course, has been an ongoing conversation within the gig economy.
Those who work as 1099 contractors can set their own schedules, and decide when, where and how much they want to work. For employers, bringing on 1099 contractors means they can avoid paying taxes, overtime pay, benefits and workers’ compensation.
As Lyft notes in the S-1, this conversation has resulted in a number of lawsuits, arbitration proceedings, government investigations and more.
“The tests governing whether a driver is an independent contractor or an employee vary by governing law and are typically highly fact sensitive,” Lyft states in its S-1. “Laws and regulations that govern the status and misclassification of independent contractors are subject to changes and divergent interpretations by various authorities which can create uncertainty and unpredictability for us. We continue to maintain that drivers on our platform are independent contractors in such legal and administrative proceedings, but our arguments may ultimately be unsuccessful.”
In the event Lyft is forced to reclassify its drivers, that could result in a number of new financial burdens for the company. That includes:
- Expense reimbursement
- A potential injunction prohibiting Lyft from continuing its current business practices
- Claims for employee benefits, social security, workers’ compensation and unemployment
- Monetary exposure relating to failure to withhold and remit taxes, unpaid wages, and wage and hour law requirements
Lyft goes on to note that reclassifying its drivers as W-2 workers “may require us to significantly alter our existing business models and operations.” And this is one of those risks that could very easily happen.
As Lyft points out, it’s actively involved in six class-action lawsuits pertaining to driver classification. And the company has already settled a couple of lawsuits to the sum of $27 million in 2013, and $1.95 million in 2018. Meanwhile, California is actively examining this issue in Assembly Bill 5, which would improve protections and rights for gig economy workers. That bill was introduced in light of a groundbreaking state Supreme Court decision in April.