Changes to how
Lyft announced Feb. 6 it would guarantee drivers receive at least 70% of fares paid by customers each week after external fees and provide an earnings summary detailing fee deductions, among other changes. DoorDash in July gave its drivers the choice to be paid by the hour instead of per delivery.
The changes in earnings policies by two top gig economy players follow demands from rideshare and delivery-app drivers for more guardrails from state and local governments around how workers on these platforms are compensated.
Because DoorDash, Lyft, and other tech giants treat their drivers as independent contractors, they aren’t owed minimum wages, overtime pay, and other legal protections provided by federal law that typically apply to employees.
While greater pay security could attract more workers to DoorDash and Lyft, some attorneys and worker advocates say the new policies could also make drivers look more like employees under wage and hour law, especially as federal regulators are increasing their scrutiny of these working arrangements.
The US Department of Labor recently finalized stricter rules for determining who is an independent contractor under federal wage law, which will generally make it harder for companies to classify workers as contractors.
“One of the key factors that is laid out in the final rule proposed by the US DOL on independent contractors involves whether or not a worker does have an entrepreneurial opportunity for profit or loss,” said Eric Su, a partner at Crowell & Moring LLP in New York. And “in many states where they use some kind of a control test, like in New York, degree and method of control is a major factor in determining a contractor status or employee status,” he said.
Lyft has said the change isn’t in response to the new DOL rule, which the agency has been drafting for over a year, but serves to address concerns raised by drivers.
“There is no correlation or connection between this driver-first product announcement and the recent Department of Labor rule,” the company said in a statement. “These new features have been in the works for months and are the result of feedback and interactions we’ve had directly with drivers.”
Classification Questions
Whether gig-economy workers should be treated as contractors or statutory employees has become one of the most contentious debates of the employment law landscape in recent years.
Businesses, including Lyft and DoorDash, as well as some workers, say the independent contractor model gives them freedom and flexibility that wouldn’t be available in traditional employment. But, labor advocates and federal regulators have raised concerns that the gig economy is misclassifying app-based workers as contractors in order to avoid the increased costs and legal liabilities that come with hiring an employee.
While the policy changes from both Lyft and DoorDash aren’t necessarily going to lead to a finding that their drivers are in fact “employees,” some attorneys say these moves point toward that status.
Laura Padin, director of work structures at the National Employment Law Project, said Lyft’s announcement “illuminates what we have always known.”
“Which is that Lyft holds all the cards in its relationship with drivers, meaning drivers have never had the ability to set or negotiate their pay, like a true independent contractor would,” she said.
Typically, worker classification tests look at a series of factors in the working relationship, like a worker’s opportunity to gain or lose money through their own decision-making and the amount of control an employer exercises over pay rates, prices, and scheduling.
Both of those circumstances are considered as part of the DOL’s new worker classification rule, which is set to go into effect next month.
Su said that when analyzing how much economic control an employer has over a worker under classification tests, “it’s not just the ability to negotiate pay, but also what does pay entail? Does pay include the contractor’s cost of doing business, or is the cost of doing business also being reimbursed by the employer?”
He said if a worker is being reimbursed by their employer, that could indicate employee status from a pay perspective.
“If you’re a contractor, you’re a business, you would have built all your costs into the consideration that you’re negotiating with your customer,” Su said.
But Denise Heekin, a labor and employment attorney at Bryant Miller Olive P.A., said it’s important to note that the new Lyft guarantee isn’t promising a minimum amount of pay each week, but rather simply “changing how much they’re giving their drivers.”
“I don’t think it is going to necessarily change how a court would ultimately determine employee or independent contractor, it’s certainly going to be something that’s considered,” she added. “But I don’t think it’s going to be a factor that suddenly makes this issue clear.”
State-Level Fights
Amid the long-standing back and forth over how gig-economy workers should be classified, rideshare and delivery-app drivers have called on state legislatures and city councils to force the companies to raise their earnings. Many proposals focus on a per-mile and per-minute minimum pay requirement, similar to a Washington law that state legislators negotiated in 2022 as a compromise between the industry and a local drivers union.
But a few proposals have begun considering a cap on the percent of customer payments that app companies can retain for themselves, or at least requiring the companies to be transparent about what that portion is.
A proposed ordinance pending at the Chicago City Council would require that transportation network companies such as
Colorado lawmakers are considering bills that would require gig companies to provide riders and customers with detailed reports on where payments wind up. The Virginia House narrowly passed a similar measure Monday.
A rideshare driver task force convened by Minnesota Gov.
Drivers for Lyft “earned roughly 88% of rider payments, after external fees” in 2023, according to the blog post from CEO David Risher that announced the new earnings policy, but “in any given week last year, approximately 15 out of 100 drivers earned less than 70% of what riders paid, after external fees.” Almost two-thirds of drivers experienced this at least once, he said.
Kerry Harwin, a spokesman for the Drivers Union in Washington, which fought for that state’s 2022 driver pay law, said Lyft’s new driver earnings policy doesn’t go far enough.
Because external fees such as taxes and insurance eat up about a quarter of the fares paid by riders, Lyft’s 70% guarantee works out to closer to 50% of the total fare being paid to drivers, Harwin said.
“Drivers have been advocating for a guaranteed percentage of the take for a long time,” Harwin said. “It does not seem that this is that.”
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