When Kristin Sverchek joined Lyft five years ago as its general counsel, she says she wasn’t 100 percent sure the company would still be around in a year. Worst-case scenario, she said she would learn from a company with a novel business model and find a new gig with new experience under her belt.
It was 2012 when she took on the challenge. The idea of getting into a stranger’s car was still not commonplace and passengers still needed convincing. There were no regulations. Ever since, ridesharing and other gig economy companies have exploded across the country. With this growth comes a mountain of court battles and new state and local municipalities grappling with how to regulate and rein in these companies.
Sverchek and her team are on the front lines and work on new issues every day, grappling with issues that range from the classification of their workers, which Lyft and other similar companies label as independent contractors rather than employees, to how self-driving cars will be regulated.
We spoke with Sverchek for an upcoming piece on the challenges in the gig economy. Sverchek offered her perspective on the future of the on-demand sector and she offered advice to up-and-coming companies that might not find themselves fitting exactly into the existing labor structure. The conversation that follows was edited for length and clarity.
What is your perspective on the classification battles underway over how to classify gig economy drivers?
Kristin Sverchek: Going back to first principles, the classification of employees versus independent contractors is a fact-sensitive analysis. It’s less about a company making a decision one way or another but the practical realities of the situation.
One thing that I would challenge you to think about is not all gig companies are created equally. It depends on the manner in which the individuals are doing whatever they are doing. In our case, drivers are allowed to use our platform whenever they want to. They can log in and can log out. Some people do it many more hours per week. Some do it to and from their full-time jobs. Some people are students who do it over the summer. The uses vary greatly. It’s a decision when to log on and off, where to go, how long they are driving. There are no shifts. They decide whether they accept a request. So in our case, that degree of freedom, and the flipside is the lack of control exercised by the company, that’s exactly why they are independent contractors. They don’t operate the way employees do.
What challenges does this pose?
Obviously, it poses issues with respect to litigation we might face. That’s certainly something we have to deal with. We have suits in California and Massachusetts. Whether they go on our platform, that’s a fundamental part of the business model.
Why do you think some gig economy companies are ripe for litigation?
On one hand, we probably don’t see more litigation than a more established company with similar valuation to ours. But we are interesting to people and in the news more often. It’s funny because everything that happens to us on the legal front is deemed newsworthy, unlike other companies like FedEx facing litigation. But if you accept the premise that there is more litigation, I do think it’s because the models are newer and people are trying to figure out what to do with it. As Judge [Vince] Chhabria famously said of misclassification in a California court, it’s a case of being handed a square peg and asked to choose between two round holes.
Are you watching any legislation being considered or passed now that would be good or bad for your business?
It’s interesting because, the time I joined the company we weren’t regulated anywhere yet. We were a brand-new business model and no one knew what to do with us. Now, I think we are regulated in most states. Regulation is sort of a way of life for us. We are used to it. It’s not something that I would characterize as an extra challenge. Going back to first principles, our founders were very sensitive to and very thoughtful about including trust and safety parameters in the foundation of the platform. Form the time we were first launched, we had background checks, driving checks, insurance and all of these different things. As we have seen more and more regulation across the country, there are different flavors of that. By and large it was consistent in what we set out to do.
There have been times we have had to take a principled stand. In Austin, you have probably heard about, they passed regulation for fingerprint background checks. We wouldn’t characterize this as more stringent regulation, but something more subject to attack and that has the tendency to be discriminatory. We and other competitive companies took a principled stand and left the market. We saw the city reverse course on that and now they are back in the market. I think the bottom-line message is that we are used to regulation as a fact of life for us. We are comfortable with it because really we care about the same public safety interests that the regulators care about.
Would that be a piece of advice for a new on-demand company? To try to think about what you could do to be the safest we can be in this space?
That was something that was different about our approach, compared to some of the other companies that came before us. We didn’t have this allergic reaction to regulation. We felt the same public safety interests that regulators care about are things that are important for the healthy function of the business for us. They are just the right things to do. So, rather than sort of stonewall regulators, we invited them in for meetings and took time to explain our business model and educate them and have members of the driver and passenger community speak up as well.
And not be offput regulations themselves?
I think the fact of regulations are not a bad thing as long as they are appropriately written to solve the problems they are intending to solve. In Austin, we thought what was put into place wasn’t actually advancing public safety principles. In many other places that has not been an issue.
Are you following any federal proposals? Would you support portable benefits for a third classification of worker?
I think portable benefits is an interesting one for us. It’s sort of a quirk of our employment system that a lot of these benefits are tied to employment. There is no inherent reason that has to be the case. Things like 401(k) or health insurance, there is no reason that has to be tied to full-time employment. Portable benefits are something we’ve been interested in for a couple of years and have engaged in dialogue on the federal level about. A third class of employment is something less familiar with. If you get the portable benefits, I’m not sure what you solve for by getting a third class.
States are passing regulations in different ways; would Lyft prefer a federal model to avoid a patchwork of regulations in this space?
Certainly that is a challenge in employment laws in general that they vary state by state. You can’t always know, for example, whether something applicable in California is applicable to another state. There’s not a lot to rideshare regulation on a federal level. We see it state by state. We prefer as much consistency as we can. That’s easiest on a business model.
What is the consequence to the company if the courts decide to classify Lyft workers are employees? Would there be an issue with the bottom line?
I understand what you are asking but it’s a hard question for me to answer. It’s so fact-sensitive it would depend on what the parameters were. Certainly it would, just like with any piece of litigation to the extent that things end the way you don’t expect them to and you have to accommodate your business model. It’s hard for me to say what would happen with misclassification. That would depend on jurisdiction, the venue. Those kind of things.
How could your approach be instructive to other companies in the gig economy in dealing with compliance issues?
This is totally self-serving as a lawyer, but one thing that was important for me personally, I actually was outside counsel to the company before I was hired as general counsel. I came on when it was really, really small and we had only 30 employees. This was about five years ago. And I think that one challenge that in-house counsel face more broadly is that businesses sometimes regard the lawyers as an impediment to their business and skirt around them.
I haven’t faced a challenge at Lyft because the philosophy of lawyer as facilitator and helper has been true since beginning. The advice my team provides at Lyft is ingrained in everyone. Being forward-thinking about engaging compliance issues and with lawyers from day one is important for companies.
As opposed to getting sued and coming up with a fix later?
Yes, exactly. You are then trying to reverse-engineer to get to an outcome, versus having done it the right way from the get go.
What do you see as the future of the gig economy?
With the gig economy in general, the sky's the limit. The reason our platform has been so popular, with respect to our drivers, the supplemental income they earn on the Lyft platform allows them to pursue other interests. I had a recent ride, where the driver had worked at a bank as a teller, but he needed it to pay rent and other things but he really wanted to work as a photographer. He was able to quit his job at the bank and had his supplemental income from Lyft. He was then able to open a photography studio.
You mentioned earlier that independent contractors don’t get benefits but have flexible work schedules—could this lead to rethinking any definitions?
The concept of portable benefits is the key to that. It makes people feel they are less chained to employment that they might otherwise want.
What other regulatory issues you are working on?
In the job of being a lawyer at Lyft, any given day you are faced with new and unexpected challenges that somebody hasn’t thought through before. My team is super collaborative. We have to put our heads together and figure it out. This happens multiple times per day. That’s what makes the job fun and exciting.
Does this includes self-driving car issues?
We, like other companies in the transportation space, see that as the future. Certainly that’s not something I thought about when I started my law career. Even with Lyft, I have to remind myself when I started at the company the idea of getting into a stranger’s car was still—it took a lot of convincing. People still thought it was really crazy. Now it’s something a huge demographic of people do on a daily basis.
Actually the truth is that when I took the job in 2012, I didn’t know if the company would be around for another year. I thought the mission was interesting enough and believed in the co-founders enough, that if the company folded in a year and I can find another job, it’s not such a bad thing because I learned a tremendous amount. Lyft has surpassed that worst-case scenario.