Bhairavi Desai celebrates policy changes for New York drivers after Uber and Lyft settlement

Uber pays $290 million and Lyft $38 million after investigations uncover improper wage deductions and denied benefits in New York.

Rideshare giants Uber and Lyft have agreed to pay a combined $328 million to settle allegations of systematically cheating drivers out of wages and withholding benefits like paid sick leave.

New York Attorney General Letitia James announced the “landmark” settlements on Thursday, with Uber paying $290 million and Lyft paying $38 million into funds that will provide restitution for drivers.

The settlements resolve multi-year investigations which found the companies improperly deducted taxes and fees from driver pay that should have been paid by passengers. Uber and Lyft also misclassified drivers as independent contractors rather than employees, denying them paid sick leave and other benefits guaranteed under New York labor laws.

“For years, Uber and Lyft systematically cheated their drivers out of hundreds of millions of dollars in pay and benefits while they worked long hours in challenging conditions,” said Attorney General James. “These drivers overwhelmingly come from immigrant communities and rely on these jobs to provide for their families.”

James called the agreements the largest wage theft settlements in the history of her office, which estimates over 100,000 current and former Uber and Lyft drivers in New York are eligible for payouts.

How Uber and Lyft shortchanged drivers

From 2014 to 2017, Uber deducted taxes and fees from driver payments that should have been charged to passengers, according to the attorney general’s investigation.

Uber’s terms of service misrepresented the deductions, stating the company would only take its commission and that drivers could charge riders for “any tolls, taxes or fees.” But the Uber app provided no way for drivers actually to do so.

Lyft similarly deducted taxes and fees from drivers by imposing an “administrative charge” from 2015 to 2017, the probe found.

Both companies also failed to provide the paid sick leave that New York City and state law guarantees to employees.

“Uber and Lyft systematically cheated their drivers out of pay and benefits while the drivers worked long hours in challenging conditions,” said James.

Historic settlement wins back pay, benefits for drivers

The $328 million settlement is believed to be the largest involving wage theft in New York state history.

Uber’s $290 million payout and Lyft’s $38 million reflect the back taxes, fees, lost wages, and denied benefits the companies improperly extracted from drivers over multiple years.

James said the settlement funds will be distributed in full to affected drivers, who will be notified by mail, email, or text message if they are eligible to file a claim.

In addition to the monetary payout, Uber and Lyft agreed to reform their policies to provide new benefits and protections for drivers moving forward.

  • Drivers across New York will now receive a guaranteed minimum wage per ride of $26 per hour outside of NYC and $17 per hour in NYC.
  • Paid sick leave will be accrued at 1 hour for every 30 hours worked, up to 56 hours per year.
  • Improved wage statements will give drivers details on rider payments and earnings per ride.
  • In-app features will allow drivers to easily request sick leave and appeal deactivations.

“This is a historic victory for drivers,” said Bhairavi Desai, executive director of the New York Taxi Workers Alliance, which represents over 20,000 drivers in the state.

The changes “will ensure drivers finally get what they have rightfully earned and are owed under the law,” said Attorney General James.

Impact on Uber, Lyft business model

The settlement represents a major concession by Uber and Lyft to provide employee-like benefits while still classifying drivers as independent contractors.

Labor advocates say it could prompt other jurisdictions to demand similar benefits for rideshare drivers.

“This settlement could help advance other states’ efforts to reach a recovery for drivers whose rights have been violated,” noted attorney Shannon Liss-Riordan, who has represented drivers in misclassification lawsuits.

But Uber said the agreement “will serve as a model for other states” by benefiting workers while maintaining flexible work arrangements.

Uber CEO Dara Khosrowshahi previously said he does not want drivers reclassified as employees, estimating it would cost the company over $500 million annually in California alone.

The $290 million settlement equates to about 1% of Uber’s annual revenue. Lyft’s $38 million payment represents under 4% of its revenue.

What’s next for the rideshare industry

From now on, Uber and Lyft will have to balance providing benefits and guarantees for drivers against keeping consumer costs low.

Some analysts say the settlement could put pressure on the companies’ finances if replicated nationwide, as both continue working toward profitability after years of losses.

Rideshare platforms like Uber and Lyft may also face ongoing scrutiny of driver treatment from regulators and policymakers.

James said her office “will continue to make sure that companies operating in the so-called ‘gig economy’ do not deprive workers of their rights or undermine the laws meant to protect them.”

Labor groups say the settlement is a warning shot to gig economy employers that shortchange workers.

“We’ve waited eight long years to see justice for our members,” said NYTWA’s Desai, vowing to continue organizing rideshare drivers in New York and beyond.