TLDRs;
- Lyft paid $19.4 million to New Jersey after years of fighting misclassification claims involving more than 100,000 drivers.
- The payment covers $10.8 million in back taxes and $8.5 million in penalties and interest.
- New Jersey officials say misclassification denies workers benefits like unemployment, disability, and family leave protections.
- Proposed changes to the ABC test could make it nearly impossible for ride-hailing companies to classify drivers as contractors.
Lyft has agreed to pay the state of New Jersey $19.4 million after a years-long dispute over whether its drivers should be considered employees or independent contractors.
The settlement, announced Thursday, ends the company’s legal challenge and closes one of the most significant cases in the national battle over gig worker rights.
Misclassification Costs Reach Millions
According to the New Jersey Department of Labor and Workforce Development (NJDOL), the ride-hailing giant failed to properly classify more than 100,000 drivers between 2014 and 2017.
By treating workers as contractors instead of employees, Lyft allegedly avoided paying key payroll taxes that fund unemployment, family leave, and disability programs.
The $19.4 million settlement includes $10.8 million in back contributions owed to the state and an additional $8.5 million in penalties and interest. The company initially contested the findings, but it dropped its legal challenge in August , just days before a scheduled administrative hearing. Lyft had already made an earlier partial payment to prevent interest from accumulating further.
State Officials Push Back Against Gig Model
New Jersey officials emphasized that misclassification doesn’t just hurt the state, it harms workers directly. Labor Commissioner Robert Asaro-Angelo noted that when companies sidestep payroll obligations, employees lose access to basic protections.
“Misclassification imposes a financial toll on both good actor employers and misclassified workers, who lose critical rights such as minimum wage, overtime pay, workers’ compensation, and family leave,” he said.
Attorney General Matt Platkin echoed that sentiment, vowing stronger enforcement against corporations that attempt to bypass employment laws.
“We will not allow businesses to exploit workers by misclassifying them,” Platkin said.
Lyft Maintains Contractor Model
Despite the settlement, Lyft stood by its longstanding position that its drivers are independent contractors, not employees. A company spokesperson reiterated that while Lyft disagreed with the state’s findings, it would no longer pursue legal action against the NJDOL.
The company’s defense mirrors arguments made by other gig economy platforms like Uber, which paid $100 million to New Jersey in 2022 after facing similar allegations. Both firms argue that they are technology companies connecting drivers with riders, rather than direct employers.
However, regulators across the U.S. have been increasingly skeptical of this business model. The New Jersey case highlights growing momentum among labor authorities to challenge how ride-hailing companies structure their workforce.
Broader Implications for Gig Workers
The resolution of Lyft’s dispute comes at a pivotal moment. State officials are now reviewing updates to New Jersey’s ABC test, which determines whether a worker is considered an employee or contractor.
Under proposed rules, the definition of an employer’s “place of business” could include a ride-hailing driver’s vehicle. If adopted, such a change would make it far more difficult for companies like Lyft to argue that drivers operate independently.
For gig workers, the outcome could redefine access to benefits such as unemployment insurance, disability coverage, and paid leave. For companies, it could mean higher costs and a fundamental restructuring of their operating model.
While Lyft’s settlement does not set a nationwide precedent, it adds pressure on other states, and potentially federal regulators , to reconsider the classification of millions of gig workers.
