Examining Lyft’s $2M FTC Fine #NewsUnitedStates

Lyft Inc. recently agreed to pay more than $2.1 million to settle a lawsuit filed by the federal government. 

Here’s what happened – and what finance can learn from the company’s expensive mistake.

Recruiting Tactics Face Scrutiny

According to the Federal Trade Commission (FTC), in 2021 and 2022, Lyft made “numerous false and misleading claims” about how much money people could earn as a Lyft driver. 

Specifically, the FTC pointed to two alleged problems: inflated hourly rates and misleading earnings guarantees.

‘Inflated’ Hourly Rates

Company advertisements claimed that Lyft drivers could make specific hourly amounts in cities around the U.S. For example, ads claimed they could earn $33 per hour in Atlanta, $41 per hour in Portland, and up to $43 per hour in Los Angeles.  

In the FTC’s view, those advertisements were problematic because Lyft failed to disclose that the numbers were based on the earnings of the top 20% of drivers rather than what an average Lyft driver earned. 

How skewed were those numbers? The advertised potential learnings inflated the actual income earned by most drivers “by as much as 30%,” the FTC said.

The FTC also said the company’s hourly earnings claims 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 $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 warning to put the company on notice that “the deceptive earning claims” crossed a line and didn’t comply with the law. Even so, the company continued to use the “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.”

Settlement Includes 7-Figure Fine

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

• Pay a $2.1 million civil penalty
• Clearly disclose under its earnings guarantees that drivers will receive only the difference between their regular earnings and the guaranteed amount, and
• Provide notice to its drivers about the settlement.

The agreement also prohibits Lyft from making: 

• Earnings claims without meaningful evidence to support them, and
• Any claims about hourly earnings that include tips as part of the stated hourly amount.

Takeaways for Finance Pros

This case offers three important takeaways for finance pros: 

1. Collaboration and internal controls are essential. The misleading earnings claims in this case suggest that interdepartmental communication between marketing, human resources and finance may have been lacking. To avoid a similar mistake, finance pros should be looped in on all financial claims, especially those shared externally. Strengthen accountability by establishing clear internal controls, especially around public-facing financial claims. Implement a review process that includes finance and compliance departments to vet claims before they go live.
2. Accuracy in financial projections matters. Overstating financial projections – whether it’s earnings, savings or potential returns – is never a good idea. Doing so may lead to regulatory scrutiny from the feds and bring costly civil penalties. Finance pros should ensure all financial claims, especially those shared externally, are backed by comprehensive, accurate data that reflects typical outcomes – not just the best-case scenario.
3. Transparency builds trust. Applicants and employees value pay transparency from their employers. This case shows how employees who feel misled about their pay might be motivated to take legal action, whether that’s filing a lawsuit or complaining to a federal agency. Finance pros can help reduce the likelihood of legal headaches by making sure that financial offers or guarantees are communicated clearly and accurately, without complex terms that might be misinterpreted.