2 weeks ago
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Lyft has settled a lawsuit filed by the Department of Justice accusing the company of getting drivers back onto the platform during the pandemic by misleading them about how much they could potentially earn. As a result of the settlement, the second-fiddle to Uber will pay $2.1 million and promises to not engage in the misleading practices noted in the case.
The crux of the case is that—between April 2021 and June 22—Lyft advertised potential earnings of $40 per in hour in cities including San Francisco and Boston, and more than $30 per hour in cities including Atlanta and Dallas. The Justice Department says that figure was based on the earnings of the top 20% of drivers. The majority of drivers, who aren’t sleeping in their cars or taking other measures to maximize their earnings, probably shouldn’t expect to make that much. The advertised earning potential was really only possible if drivers hustled hard.
Lyft says that it already changed its practices since the lawsuit was filed but decided it was best to just settle. “We agreed to this settlement because we recognize the importance of transparency in maintaining trust in the communities we serve,” Lyft said last week.
While $2.1 million isn’t a lot of money for a tech company, Lyft isn’t exactly doing well these days. Once a fierce rival with Uber, its fortunes have headed in the opposite direction of the years. Uber expanded into a litancy of additional services including notably food delivery, which ended up being quite beneficial during the pandemic when people weren’t going outside and instead ordered food at home. Lyft meanwhile stuck largely to ridehailing and its micromobility division including CitiBike in NYC. Uber’s market cap today is $153 billion, while Lyft’s is just over $5 billion.
The company hired CEO David Risher to try and turn things around but the stock is down 2% year-to-date.
Uber was able to become profitable by cutting costs and, much to the chagrin of riders, raising prices. The old days of going across town for $7 are largely gone now that Uber doesn’t have a real competitor in Lyft and needs to show profitability. And to be sure, it makes sense that Uber can be profitable since it acts as a middleman and puts the burden on riders for most of their compensation. It was recently reported in Bloomberg that in NYC, in order to avoid paying a legally-mandated minimum wage, Uber has begun locking drivers out of the app when demand is low (it largely only has to pay them a wage when they’re on the app but not driving a passenger).
