Dive Brief:

• Ride-hailing service Lyft included independent contractor classification, which generally applies to the platform's drivers, among the list of potential risks in its initial public offering (IPO) prospectus published March 1.
• The company said it is "regularly subject to claims, lawsuits, arbitration proceedings, administrative actions, government investigations and other legal and regulatory proceedings at the federal, state and municipal levels" challenging this classification. While maintaining that drivers on its platform are correctly classified as independent contractors, Lyft said a determination or settlement in any legal proceeding finding drivers of any rideshare platform to be an employee "could harm our business, financial condition and results of operations" for a variety of reasons.
• Lyft said it is involved in many legal proceedings related to driver classification, and that the results of any such proceeding — should it result in an employee classification for rideshare drivers — "may require us to significantly alter our existing business model and operations and impact our ability to add qualified drivers to our platform and grow our business." However, the company also included the increased demand for such "alternative work" forms in the prospectus as one of several trends that support its business model.

Dive Insight:

Lyft's business risks are tied closely to those of Uber and other gig economy platforms that rely on the work of freelancers as a fundamental component of their business models. Employers outside this sphere use these classifications as well, and — like Uber and Lyft — have faced heavy criticism for the practice.

A key point of contention is that segments of the U.S. population who rely nearly exclusively on gig work to get by miss out on the benefits and employment protections often given to full-time and even part-time employees. Lyft and others have attempted to address the problem proactively, offering drivers perks like tuition discounts, while Uber, which offers vehicle accident protection for U.S. drivers, has flirted with offerings like health insurance and parental leave. Uber CEO Dara Khosrowshahi said in an October speech that the company wants to prevent independent contractor work from being a "have-not state" compared to full-time employment. Other gig economy executives agree with the principle of expanding benefits for platform users, but say laws can get in the way of such efforts.

Meanwhile, the U.S. regulatory framework has been slow to adapt to the gig economy, while rulings by federal judges have not been favorable to those claiming misclassification under various laws. The 9th U.S. Circuit Court of Appeals ruled in September 2018 that a group of Uber drivers were bound by an arbitration clause they signed with the company, and were incorrectly conferred class status by a lower court. The employees argued they had been misclassified as independent contractors as part of their class action suit, and while the court didn't rule on the merits of the claim, an expert who spoke with HR Dive called the outcome "of significant benefit to Uber and other comparable businesses."

But some municipalities have taken a more driver-friendly approach without directly addressing the classification issue, namely New York City. Drivers there have access to the country's first minimum wage law for ride-hailing app drivers, currently $17.22 per hour. The law could serve as a model for other municipalities, Smart Cities Dive reports.

Lyft's recent decision to offer stock options to drivers also could prompt similar moves by competitors, Micah Rowland, chief operating officer of gig economy hiring platform Fountain, told HR Dive in an emailed statement. "Following this IPO from Lyft, if a gig-based company does not distribute the profits of commercial success to both full-time employees and the 'work-doers,' they will likely be criticized for exacerbating income inequality and exploiting under-appreciated and economically disadvantaged workers," Rowland said.