Ride-hailing giants Uber and Lyft have agreed to pay a combined amount of $328 million to settle a lawsuit brought by the New York Attorney General over allegations that the companies underpaid their drivers.

The settlement resolves a lengthy probe into driver pay practices at the two firms. Under the terms, Uber will pay $290 million while Lyft will pay $38 million in restitution to drivers who were impacted by the alleged wage theft.

New York Attorney General Letitia James accused Uber and Lyft of improperly deducting taxes and fees from driver’s earnings over several years. Her office also claims that the companies denied drivers proper paid sick leave that is guaranteed to New York workers.

The settlement funds will provide back-pay compensation to over 100,000 current and former Uber (UBER) and Lyft drivers who are eligible to file claims. The companies did not admit any wrongdoing when agreeing to the settlement.

Uber and Lyft Were Accused of Performing Improper Deductions

According to the Attorney General’s investigation, Uber deducted taxes, fees, and other charges from driver’s payments between 2014 and 2017 that should have been paid by passengers.

For instance, sales taxes and Black Car Fund fees to support public transit were subtracted directly from driver compensation. However, Uber’s own terms of service stated taxes and fees were separate charges that riders should pay, not drivers.

The Attorney General’s office said Lyft similarly deducted an “administrative charge” from drivers that covered taxes and fees owed by passengers, not drivers themselves. These alleged deductions deprived drivers of pay that they were rightfully owed under the law. The settlement aims to reimburse drivers for those missed earnings.

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In addition to deduction issues, the Attorney General’s lawsuit accused Uber and Lyft of failing to provide paid sick leave to drivers as required for workers under New York City and New York State laws.

Paid sick leave guarantees compensation for employees who are unable to work due to illness. But by classifying drivers as independent contractors rather than staff, Uber and Lyft allegedly avoided offering this benefit.

Under the settlement terms, Uber and Lyft have agreed to grant drivers paid sick leave going forward based on the number of hours they work.

Lyft’s Policy Officer Considers the Settlement a “Win” for Drivers

Along with reimbursing back pay, the settlement demands changes to how Uber and Lyft pay and support drivers moving ahead. For drivers outside of New York City, the companies must now provide guaranteed minimum pay of $26 per hour worked. The minimum hourly rate will be adjusted annually for inflation.

The companies must also supply drivers with detailed pay breakdowns and improved earnings notifications. An in-app chat feature will let drivers better inquire about their compensation and working conditions.

Drivers will additionally gain the ability to appeal to account deactivations by Uber or Lyft. In addition, new sick leave policies will provide up to 56 hours of paid time off per year.

The $328 million resolution represents a massive settlement for Uber and Lyft, who have faced escalating pressure over driver treatment and pay practices.

It also signifies a major win for gig workers who have long accused the ridesharing platforms of exploiting drivers as independent contractors. By avoiding giving employee status to drivers, Uber and Lyft have fewer obligations regarding wages and benefits.

The settlement establishes new standards for how Uber and Lyft must compensate and support drivers in New York. It will likely spur calls for expanded driver protections in other states as well. For example, a similar lawsuit has been brought forward by the Department of Industrial Relations of the State of California against both Uber and Lyft for engaging in ‘systemic wage theft’.

The two companies still maintain that drivers prefer operating as freelance contractors, not staffers as they aim to preserve flexible work arrangements.

Uber and Lyft emphasized in statements that the settlement does not change contractor classifications. However, it should lead to meaningful improvements for drivers under the current model.

“This is a win for drivers, and one we are proud to have achieved with the New York Attorney General’s Office”, commented Jeremy Bird, Lyft’s Chief Policy Officer regarding the historic settlement.

Meanwhile, Uber’s Chief Legal Officer, Tony West, said: “We thank Attorney General James and her team for their hard work in delivering a resolution that balances accountability and innovation while addressing the true needs of these hard working drivers in New York”

Ongoing and Worldwide Fights Over Driver’s Rights are Still Raging

Classification battles around drivers who work for platforms like Uber and Lyft keep raging worldwide. In 2021 in the U.K., Uber agreed to provide workers minimum wage, vacation pay, and pension benefits after losing a major court case.

However, in California, voters approved Proposition 22 to let Uber and Lyft preserve contractor-based jobs during a contentious legal fight over a state gig worker law. Despite the New York settlement, advocacy groups will keep pressing for better employment benefits and the protection of drivers’ rights. They maintain that the ride-hailing business model still exploits drivers overall.

Uber and Lyft will pay $39 million in restitution directly to almost 35,000 eligible drivers. The remaining $289 million will go to fund a state-administered claims process for other impacted drivers.

With payouts, concessions, and policy changes, the settlement achieves significant remedies sought by activists. Nonetheless, the debate over classifying drivers as employees instead of freelancers will keep raging nationwide.

Though costly, the settlement enables Uber and Lyft to maintain flexible worker classifications in New York for now. Other states may still follow California’s lead to push ride-sharing companies to change drivers’ employment status and different outcomes may come from public voting if it comes to that.