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 a $2.1 million fine 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, however, says it found that the 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. While not a flat-out lie, the advertised earning potential was not typical of most drivers in those cities.
Some might disagree Lyft did anything wrong, but the company says that it already changed its practices since the lawsuit was filed and 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.
$2.1 million isn’t a lot of money for a tech company, but Lyft isn’t doing super well these days compared with its rival. While Uber expanded into a litany of additional services like food and grocery delivery, Lyft stuck largely to ride-hailing and its micromobility division including CitiBike in NYC. That decision hurt it tremendously during the pandemic. 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 and Lyft to a lesser extent have been able to reach profitability by cutting costs and, to the chagrin of riders, raising prices. To be sure, it makes sense that they can be profitable since they act as a middleman and put the burden on riders for most of a driver’s compensation. These companies got riders and drivers hooked on their apps through heavy subsidies; now that it’s a daily habit for many, they’ve cut back on the freebies.
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 out of pocket when they’re on the app but not ferrying a passenger).
