Ride-sharing through the fog of labor laws
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Last month, Lyft agreed to settle a class-action lawsuit brought by its drivers in California. As part of the settlement, Lyft will pay $12.25 million to drivers and change some of the terms to which drivers must agree to access the Lyft platform. Notably, the settlement avoids classifying Lyft drivers as employees rather than contractors.

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The settlement has been heralded as a victory for Lyft as well as the drivers that rely on the platform to connect with passengers. A recent headline proclaimed that "The biggest threat to Uber's business is no longer a problem for Lyft."

Shannon Liss-Riordan, the lawyer representing the drivers, called the settlement an "adequate resolution," and stated that this "will result in some significant changes that will benefit the drivers." Likewise, Lyft released a statement affirming that the settlement will "preserve the flexibility of drivers to control when, where and for how long they drive on the platform and enable consumers to continue benefiting from safe, affordable transportation."

While the settlement is important, it ultimately does nothing to resolve the underlying question of worker classification under the various legal standards being used by state or federal agencies. Rather, it is a preview of things to come — ad hoc resolutions and piecemeal reforms — for the sharing economy.

At both the state and federal levels, sharing economy apps and platforms do not fit easily within existing labor laws. As it grows, the sharing economy repeatedly challenges the status quo of government regulation.

At the state and local level, Uber and Lyft have challenged taxi regulations. In New York City, for example, ride-sharing companies have ignited fierce debates over whether the city should continue to regulate 21st-century transportation using nearly 80-year-old laws, pitting defenders of the status quo against obvious consumer benefits, especially for low-income households.

At the federal level, another nearly 80-year-old law, the Fair Labor Standards Act of 1938, also pits defenders of the status quo against progress. This Depression-era legislation was designed to provide "as broad of a scope of statutory coverage as possible." But in practice, the nature of work has radically changed over the last 80 years; can such an antiquated law really continue to be relevant? And while the Department of Labor issued its own interpretations of who is an "employee" under the law, they have brought little clarity to the issue.

The lack of clarity at both state and federal levels is sure to generate continued class-action lawsuits. With state and federal agencies unwilling or unable to provide clarity, the question of worker classification will play out in, and be decided by, courts. This is far from ideal.

In deciding that the lawsuit against Lyft would go to a jury, federal Judge Vince Chhabria wrote, "As should now be clear, the jury in this case will be handed a square peg and asked to choose between two round holes." He warned that "the test the California courts have developed over the 20th Century for classifying workers isn't very helpful in addressing this 21st Century problem." Indeed.

However, it is not just the sharing economy that will suffer from this lack of clarity. The general shift toward more flexible arrangements is not unique to the sharing economy. My recent research with Eli Dourado, using IRS data, shows that the growth in non-employment working arrangements predates the advent of the sharing economy. Moreover, under its broadest definition, the Government Accountability Office estimates that 40.4 percent of workers in 2010 operated under alternative arrangements.

Who should be classified as employees? Lyft has avoided the question for today, but this is no guarantee that it will not resurface for someone else tomorrow. Because legal scholars, judges and legislatures have not determined the answer, the question of how workers will be classified in the 21st century will go to juries — ordinary folks simply working with square pegs and round holes.

Reforming America's labor laws will not be easy. In fact, it will be hard. Time-consuming. Politically difficult. That is why no one wants to take it on. But the alternative is downright unacceptable.

Koopman is a research fellow on the Project for the Study of American Capitalism with the Mercatus Center at George Mason University.