A federal judge on Thursday rejected a proposed settlement of a class action lawsuit against ride-hailing company Lyft, saying the $12.25 million deal "short-changed" drivers.
U.S. District Judge Vince Chhabria said in a San Francisco court filing that the amount "does not fall within the range of reasonableness."
The sticking point, Chhabria said, was that attorneys for the plaintiffs estimated the total potential claim for expense reimbursement for drivers at $64 million, and then negotiated the $12.25 million settlement based on that figure.
The $64 million estimate was based on driver data provided by Lyft from May 2012 through last June. Lyft later offered updated figures covering the period through February, which showed that drivers covered by the class-action lawsuit would have in fact been entitled to nearly twice that amount - about $126 million - according to court documents disclosed last month.
"The drivers were therefore short-changed by half on their reimbursement claim alone," Chhabria wrote.
Lyft in January agreed to settle the class action, which was brought in 2013 by California drivers who contended they should be classified as employees and were therefore entitled to reimbursement for expenses, including gas and vehicle maintenance. The drivers, who are currently independent contractors instead of employees, pay those costs themselves.
The settlement did not reclassify the drivers as employees, a point that led the Teamsters union and five Lyft drivers to file formal objections to the deal.
Lyft is among several so-called on-demand technology companies fighting legal battles with workers who claim they are incorrectly classified as independent contractors. A determination that workers are employees would affect the profits and valuations of these startups.
Chhabria said on Thursday he would approve a settlement that does not classify drivers as employees. But the deal, he said, should be adjusted so it represents, at a minimum, roughly 17 percent of the maximum value of the reimbursement claim, or more than $21 million.
Attorneys can file a motion for a new proposed settlement no later than May.
"We are hopeful this settlement can be improved to meet the judge's concerns" said Shannon Liss-Riordan, an attorney at law firm Lichten & Liss-Riordan representing the plaintiffs. "If not, we look forward to taking this case to trial as well."
At a hearing last month, when Chhabria first took issue with the settlement amount, the judge said it would be risky for drivers to proceed with the case. A jury could ultimately rule that drivers are contractors and then they would get nothing.
Lyft voiced disappointment in the ruling: "We believe we reached a fair agreement with the plaintiffs and are currently evaluating our next steps," a spokesman said.
Under the deal that Chhabria rejected, drivers would have received an average of $56 each after attorneys' fees and other expenses, documents show.
Using the updated driver data that covers the period through February, drivers would have recouped an average of $835 each under a standard rate for mileage reimbursement set by the U.S. government, or about 15 times the settlement amount.
Most of the drivers have worked for Lyft part-time, and would have made less. More than 100,000 of the 150,602 drivers included in the settlement drove fewer than 60 hours during the four-year period covered by the settlement.
Lyft has 315,000 active drivers in more than 200 markets across the country.