Lyft to Pay $2.1M FTC Fine: Actionable Takeaways For HR

Lyft Inc. recently agreed to settle a lawsuit filed by the federal government. Among other things, the company will pay a $2.1 million fine. 

Here’s what happened – and what HR can learn from it. 

Recruiting Tactics Face Scrutiny

In 2021 and 2022, Lyft made “numerous false and misleading claims” about how much money its drivers could earn, according to the Federal Trade Commission (FTC).

‘Inflated’ Hourly Rates

The FTC pointed to company advertisements that claimed drivers around the U.S. could make specific hourly amounts, such as:

• $33 per hour in Atlanta
• $41 per hour in Portland, and
• Up to $43 per hour in Los Angeles.

The problem, according to the FTC, was that Lyft failed to disclose that these numbers were based on the earnings of the top 20% of drivers rather than what a typical driver could expect to make.

Moreover, the advertised potential earnings inflated the actual income earned by most drivers “by as much as 30%.” 

The FTC also said the hourly earnings claims the company made in its job ads included tips paid by passengers, even though many drivers probably assumed their tips would be in addition to an hourly pay rate.

‘Misleading’ Earnings Guarantees

Lyft also tried to recruit drivers with “earnings guarantees” that supposedly guaranteed drivers would be paid a set amount if they completed a specific number of rides in a given time frame, the FTC said. For example, one such guarantee promised drivers they’d earn $975 if they completed 45 rides in a weekend. 

The problem here, the FTC said, was that the guarantees didn’t clearly disclose that drivers would be paid the difference between what they actually earned, and Lyft’s advertised guaranteed amount – and not the full amount, such as the $975 listed in the example above.

Lyft received multiple complaints from drivers who said they believed the amount listed in the company’s guarantee would be paid as a bonus on top of whatever pay they received for completing the assigned number of rides, the FTC said. 

Feds Take Action to Protect Gig Workers

In October 2021, the FTC sent a Notice of Penalty Offenses that put the company on notice that “the deceptive earnings claims” were against the law. Even so, the company allegedly continued its deceptive practices, the FTC claimed.

“It is illegal to lure workers with misleading claims about how much they will earn on the job,” FTC Chair Lina M. Khan said in a press release. “The FTC will keep using all its tools to hold businesses accountable when they violate the law and exploit American workers.”

After its investigation, the FTC referred the Lyft case to the Department of Justice (DOJ), and the DOJ filed a lawsuit on Oct. 25.

“The Justice Department will vigorously enforce the law to stop companies from misleading Americans about their potential earnings in the gig economy,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the DOJ’s Civil Division. “We will continue to work with the FTC to stop unfair and deceptive marketing practices.”

Expensive 7-Figure Fine

To resolve the dispute, Lyft agreed to a proposed settlement that: 

• Requires Lyft to pay a $2.1 million civil penalty
• Prohibits Lyft from making earnings claims without meaningful evidence to support them
• Prohibits Lyft from making any claims about hourly earnings that include tips as part of the stated hourly amount
• Requires Lyft to clearly disclose to drivers that, under its earnings guarantees, drivers will receive only the difference between their regular earnings and the guaranteed amount, and
• Requires Lyft to provide notice to its drivers about the settlement.

Action Steps for HR

HR pros can draw several valuable lessons from the Lyft case. Here are four key takeaways to avoid a similar mistake:

1. Prioritize transparency in recruitment and hiring. Misleading potential hires about earnings (or job duties) can lead to distrust and cause potential legal issues. HR has to set the standard. Make sure recruitment materials present accurate info about the job, pay and benefits. Moreover, pay transparency legislation continues to gain steam – five more states are lined up to have pay transparency laws take effect next.
2. Advertise realistic earnings. Setting earnings expectations based on outliers, like Lyft allegedly did with the top 20% of drivers, can put employees in the mood to sue. Use typical earnings figures in job postings to provide a more accurate picture and avoid setting employees up for disappointment.
3. Clearly communicate terms of bonuses and guarantees. Lyft drivers complained about the company’s “earnings guarantees,” so better communication might’ve prevented or reduced their confusion and frustration. To avoid a similar problem, give detailed explanations of any bonuses, guarantees and benefits to make sure applicants and employees understand the requirements and conditions. Plus, bonuses present other tricky issues with overtime and taxes. If you offer any kind of bonus, you’ll need to communicate it clearly and double-check your legal obligations.
4. Proactively seek feedback and address complaints. Lyft got plenty of complaints from drivers, according to the lawsuit. But it’s not clear how those complaints were handled. A best practice is to implement feedback mechanisms, like employee satisfaction surveys and employee engagement surveys, which can help you identify and address employee issues early – and perhaps avoid an expensive legal problem.