By Grace Lee
Grace Lee is a sophomore in the College of Arts and Sciences.
Lyft, the second largest rideshare service in the U.S., pulled ahead of its long-time competitor Uber by being the first of its kind to go public on Friday, March 29th, 2019. The future looks promising for investors, as the company ended its first day with a market valuation of $22.2 billion . However, amidst all the hurrah of the trading comes complications with regulators, and there are a number of legal risks associated with Lyft going public. This is expected with decoupling – when a new technology disrupts an existing industry, in Lyft’s case, the public transportation and taxi service industry . These risks were noted in Lyft’s filing to the Securities and Exchange Commission while registering for its initial public offering .
One of the most substantial legal risks that Lyft has to consider relates to a core part of its business model, its employees. Lyft currently classifies its drivers as independent contractors; however, labor activists are pushing for ride-hailing app drivers to be classified as employees. Further, the California Supreme Court has already introduced a three-part test to determine whether someone should be considered an employee or a contractor. Requirements for consideration as an independent contractor are outlined in Dynamex v. Superior Court of Los Angeles County as follows .
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact,
(B) that the worker performs work that is outside the usual course of the hiring entity's business, and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business, the worker should be considered an employee and the hiring business an employer under the suffer or permit to work standard in wage orders.
Many employment lawyers have stated that this test will provide more protection for gig economy workers. As Lyft has already faced thousands of individual claims related to driver classification, these reforms may be necessary for dealing with the magnitude of the problem. Lyft drivers make about $17.50 per hour and do not receive any employee benefits. Lyft argues that by changing current classifications, it will suffer financial costs such as penalties for withholding taxes, minimum wage requirements, and employee benefits . How Lyft deals with these consequences going forward will set a precedent for similar companies.
Another risk Lyft must consider is its expansion within the transportation industry. In 2018, Lyft acquired “Motivate,” America’s biggest bikeshare service . These scooters will offer more mobility for pedestrians, but at the cost of increased safety concerns. These will complicate local traffic regulations, and officials are still grappling with how to regulate these safety concerns.
One of the most exciting prospects for the ridesharing industry is the future of autonomous vehicles. Lyft has announced that their future depends on autonomous vehicles and has dedicated an entire division to self-driving and another section of its risk management to autonomous vehicles . Officials are still trying to figure out how autonomous vehicles would be regulated, and these uncertainties could lead to steep costs. Additionally, legislators must address the question of whether regulatory authority exists at the state or local level.
Data privacy is another risk Lyft should consider moving forward, especially in the aftermath of the Facebook/Cambridge Analytica data privacy scandal. Rideshare companies rely on access to personal and location data, and the rise of big data has questioned the meaning of privacy . As legislators move forward with creating new data privacy laws and tweaking existing ones, they will have to carefully consider consumer privacy.
Regarding the environment, Lyft filed a brief in federal appeals court in February of 2019 on greenhouse gas standards . The brief supported a lawsuit against the Environmental Protection Agency (EPA), arguing that the Corporate Average Fuel Economy (CAFE) standards set under the Obama administration for 2021-2026 should be reconsidered since Trump’s EPA has not finalized its standards yet.
This reinforces Lyft’s stance on taking action to offset emissions from its cars and become carbon neutral last year. In its brief, the company’s attorneys wrote, “Lyft relies on EPA’s greenhouse gas standards both to reduce fuel costs for drivers and to help make its rides carbon-neutral. Drivers that use Lyft need fuel-efficient cars to make the service more economic, and both Lyft and its riders count on that fuel efficiency to reduce costs and protect the environment.” They further argued that "Lyft must rely on the automotive industry to make fuel-efficient vehicles prevalent and affordable. That will only happen if automakers invest in efficiency-increasing technologies, and that investment is most likely if EPA has future standards on its books today that drive that change."
The EPA requested to dismiss the lawsuit in November, but a three-judge panel for the D.C. Circuit Court of Appeals denied the request . The court has not yet set a date for oral arguments, but it looks like the law will have the final say.
Overall, Lyft has many legal risks to consider going forward, whether they are related to worker classification, safety concerns, autonomous vehicles, data privacy, or greenhouse gas emissions. Lyft seems to be aware of this and has increased the number of “legal” job openings at Lyft . It will be interesting to observe how Lyft addresses these matters as investors are allowed a voice in Lyft’s operations.
The opinions and views expressed through this publication are the opinions of the designated authors and do not reflect the opinions or views of the Penn Undergraduate Law Journal, our staff, or our clients.