Lyft Agrees to Pay $300,000 Settlement for Violating New York Insurance Laws

Recently, commuters across the country have witnessed the emergence of ride-sharing companies, such as Uber and Lyft. These companies have become increasingly popular over the last few months, in large part due to their convenient features which allow commuters to access a car and secure transportation with the click of a button, vis-a-vis an iPhone application. However, this increased popularity has also resulted in increased scrutiny into the legalities surrounding the creation and operation of these ride-sharing companies.

For example, Lyft, a ride-sharing service company, allows its users to “hail” a ride within minutes by using “an app” on their smartphones. Lyft runs background checks on its drivers and those that are approved respond to requests for a ride and receive their fares from the customer’s stored credit card accounts. In July 2014, New York Attorney General Eric T. Schneiderman and the New York State Department of Financial Services filed a lawsuit against Lyft for allegedly allowing drivers to operate without state-approved insurance. State officials also claimed that Lyft violated state and municipal laws by launching operations in Buffalo and Rochester without obtaining approvals or notifying those cities about its operation.

In a recent settlement, Lyft agreed to pay $300,000 for allegedly violating New York insurance laws that require drivers to carry state-authorized insurance. In light of Lyft’s agreement with Schneiderman and the state’s top insurance regulator, Lyft stated, “[t]oday’s mutually agreed upon settlement does not require any changes to existing Lyft service in New York.” The company further noted that “[t]he settlement is part of our continued efforts to return true, peer to peer ride sharing to New York State at large, an effort supported by leaders and consumers across the state.” In response, Schneiderman said: “Today’s agreement enables Lyft to grow and prosper within the bounds of state and local regulations, while the penalties imposed send the message that companies that attempt to skirt the law will be held accountable.”

Another recent issue involved one of Lyft’s rivals, Uber, who defines itself as simply an app that allows a vast driver network of independent contractors to connect with customers. Many believe that since most of its drivers are part-time and enjoy flexible hours, the drivers are considered independent contractors, not employees. However, some labor activists disagree with this notion. They contend that many drivers work long hours and are taking on the added costs of gas and insurance and deserve the protections and benefits that have been afforded to employees for generations. Indeed, this issue has been the subject of litigation for Uber in states such as California, Massachusetts and New York. Earlier this month, a California labor commission ruled that a driver for Uber was an employee, not an independent contractor, which could eventually raise costs for the smartphone-based ride-hailing company, as it may now be required to pay additional employee benefits, such as healthcare costs.

As these on-demand services continue to prosper, ride-sharing companies must review relevant state and local law in order to ensure compliance. Moreover, the debate over labor practices underlying the ride-sharing companies is far from over. Ride-sharing companies must keep a close eye on the course of this nation-wide litigation, as it has the potential to have far-reaching and industry-wide financial effects.

If you or your institution has any questions or concerns regarding employment related issues, please contact Hayley B. Dryer at hdryer@cullenanddykman.com or at 516-357-3745.

Thank you to Lauren Dwarika, a law clerk at Cullen and Dykman, for her assistance with this blog post.