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The sign off comes after Chhabria rejected an initial settlement offer in April of $12.5 million, saying that it "shortchanged" drivers. He wrote in a finding Thursday that the new proposed settlement agreement "fixes the monetary flaws the court previously identified and enhances the non-monetary benefits at least to some degree."
Lyft agreed to make changes to its terms of service, including giving drivers warnings before they are deactivated and the ability to take up pay-related issues before a neutral arbitrator at Lyft's expense.
"We are pleased the court has granted preliminary approval of the settlement, which maintains the classification of drivers as independent contractors and brings us one step closer to a final resolution," said Chelsea Wilson, Lyft's spokeswoman.
"Lyft drivers in California may now receive the benefits of the settlement rather than waiting years and risking not being able to proceed on a classwide basis and risking an adverse jury verdict," said plaintiff attorney Shannon Liss-Riordan.
The settlement does not decide whether Lyft drivers are employees or independent contractors, and leaves the matter open to future litigation.
If the proposed settlement receives final approval, the $27 million will be paid out to an estimated 100,000 Lyft drivers in California. Those who have driven the most will receive the highest payments.
Class members will soon be notified of the preliminary approval and be given the opportunity to opt out or object. A final settlement hearing is expected later this year.
Receiving preliminary approval for the settlement is a win for Lyft because it means the company can avoid a costly trial, and it allows the company to continue its operations without having to classify its drivers as employees.
The San Francisco company built its business on independent contractors. Having to bring on drivers as employees would put the company on the hook for overtime payments, expense reimbursement, Social Security and other benefits, adding considerable expense and potentially affecting its $5.5-billion valuation.
Lyft's main competitor, Uber Technologies, is trying to settle a similar lawsuit. A proposed settlement of up to $100 million is currently before a U.S. district judge.