Lyft to pay $272.5 million in largest driver-misclassification settlement in California history

Lyft has agreed to pay $272.5 million to settle claims brought by the State of California and three of its largest cities that the ride-hailing company misclassified tens of thousands of drivers as independent contractors rather than employees, denying them minimum wage, overtime and sick leave over a four-year span. California officials called it the largest settlement of its kind in the state's history.

The deal, still subject to approval by a San Francisco Superior Court judge, was announced Thursday in a joint statement from California Attorney General Rob Bonta's office, the city attorneys of San Francisco, San Diego and Los Angeles, and the state Labor Commissioner. It resolves a case that has run through California courts since 2020 and covers conduct dating back further still, to the earliest years of Lyft's expansion as a public company competing with Uber for drivers and riders.

The numbers

Of the $272.5 million total, which is inclusive of attorneys' fees and costs, at least $237.075 million is earmarked as restitution for drivers, according to the officials' announcement. A third-party administrator will determine individual payouts based on the hours and miles each eligible driver logged on the platform between April 5, 2016 and December 15, 2020, the period the settlement covers.

Lyft disclosed the agreement a day earlier in a filing with the Securities and Exchange Commission, which lays out the payment mechanics in more detail than the government's statement: the company can spread payments over four years, with 5% simple interest accruing after the first year, capped at $12.4 million in total interest, and there are no penalties if it chooses to pay early. Lyft had already set aside $210 million against the matter in the fourth quarter of 2025, meaning the settlement adds roughly $62.5 million in new charges to its books. The filing is explicit that the agreement "does not constitute evidence or admission of fact or liability" by the company — standard language in settlements of this kind, but notable given the scale of the number attached to it.

How the case got here

California sued Lyft and Uber jointly in May 2020, when then-Attorney General Xavier Becerra and the city attorneys of San Francisco, Los Angeles and San Diego accused both companies of violating the state's Unfair Competition Law by treating drivers as contractors. The state's original complaint, filed that month, argued the companies had made "the calculated business decision" to misclassify drivers to avoid paying for wages, overtime, workers' compensation and unemployment insurance — a claim laid out in the original filing with the state attorney general's office.

The companies tried to force the government's claims into private arbitration under the clauses drivers sign when they join the platforms. That effort failed when a state appeals court ruled the People of California were never party to those arbitration agreements and could not be bound by them, allowing the case to proceed on the underlying misclassification question. San Francisco later amended its portion of the case; the city's amended complaint detailed specific harms alleged on behalf of drivers denied sick leave and expense reimbursement. The timing of the covered period is not incidental: California voters passed Proposition 22 in November 2020, carving out a specific, narrower set of benefits for app-based drivers while preserving their contractor status going forward. The settlement covers only the years before that measure took effect, which is why it comes with a payout rather than any change to how Lyft classifies drivers today.

Who is affected

The settlement pool is meant for drivers who worked for Lyft in California during the nearly five-year window, a population that includes a large share of the people who built the company's early rider base before it went public in 2019. It does not change Lyft's current driver classification, require any new benefits going forward, or, per the SEC filing, impose "prospective operational commitments" on the company. For current and recent drivers, the practical effect is limited to the one-time payments tied to hours and miles driven in the earlier period; the settlement does not reopen the question of contractor status that Proposition 22 already settled under state law.

Reaction

State and local officials framed the outcome as vindication for a yearslong enforcement effort. "This landmark win for workers represents the largest misclassification settlement in California history," Bonta said in the announcement. San Francisco City Attorney David Chiu said "every worker deserves to be paid fully and fairly," while San Diego City Attorney Heather Ferbert called the result "what's possible when state and local prosecutors stand together for workers." Los Angeles City Attorney Hydee Feldstein Soto said companies "must follow the law, pay their fair share and play by the rules," and state Labor Commissioner Lilia García-Brower said the settlement "is about the workers who came forward and spoke up."

"This landmark win for workers represents the largest misclassification settlement in California history."

Lyft did not concede wrongdoing. A company spokesperson said drivers "have always been properly classified under the law" and that Lyft is "glad to put this case behind" it, according to TechCrunch's account of the announcement. The company's position has been consistent throughout years of litigation over driver status: that Proposition 22 and its predecessor contractor model comply with California law, even as it has repeatedly paid to resolve disputes over the years in which that model operated without the measure's specific protections.

What happens next

The settlement still needs sign-off from a San Francisco Superior Court judge before payments begin, a step that is typically procedural in cases of this size but can draw objections from drivers or their counsel over how funds are allocated. It is also not the first time Lyft and Uber have paid out over the same underlying conduct: the two companies jointly agreed to pay $328 million in 2023 to resolve comparable wage-theft claims brought by New York's attorney general, as Reuters noted in its coverage of the California deal. California's case against Lyft was filed and litigated jointly with a parallel case against Uber, and Thursday's announcement addressed only Lyft; neither the attorney general's statement nor Lyft's own filing described the status of the corresponding claims against Uber.

For the gig-economy business model more broadly, the settlement closes out a specific legal chapter rather than opening a new one. Proposition 22 remains in effect, having survived a state Supreme Court challenge, and app-based driver classification in California is unlikely to change as a direct result of this case. What the settlement does establish, in dollar terms, is the cost states can extract after the fact when they conclude a platform company treated workers as contractors before voters or legislators had settled the question — a template other state attorneys general and city law departments are likely to study as they weigh their own enforcement options against ride-hailing, delivery and other app-based labor platforms.