The GigReporter

On September 30 of this year a federal court in Nevada denied a motion to dismiss a state False Claims Act case alleging Lyft, Inc. had fraudulently misclassified drivers as independent contractors. The ruling opens the possibility of new threats to companies using independent contractors.

The Nevada False Claims Act[1] (“NFCA”) allows whistleblowers to bring lawsuits on behalf of the government when a defendant is allegedly defrauding the government. In Dep't of Emp. Training & Rehab. ex. rel. Chagolla v. Lyft, Inc., 2024 U.S. Dist. LEXIS 176641 the whistleblower, or “relator”, claimed that Lyft had misclassified rideshare drivers as independent contractors, thereby defrauding the state of Nevada of unemployment insurance taxes. Lyft moved to dismiss the case, but the district court allowed it to proceed to discovery.

Lyft argued the action was barred by the public disclosure rule, requiring dismissal of NFCA claims based on publicly known allegations; the court found that while Lyft’s use of independent contractors was publicly known, the allegations that Lyft had deliberately evaded unemployment taxes had not been publicly disclosed previously. Lyft further argued that the relator hadn’t alleged it had ever made a false statement, and cited case law for the position that this was necessary. The court noted that those cases had been decided before a statutory amendment that allows NFCA claims to stand even without an affirmative false statement, provided the defendant knowingly conceals an obligation to pay money to the state. The Court denied the motion to dismiss.

Chagolla opens a new and disturbing avenue of threats to logistics brokers relying on the independent contractor model. Lawsuits under the NFCA and similar federal and state statutes could proceed to discovery against businesses even with only vague allegations that they are misclassifying workers to avoid employment-related taxes under this interpretation. Of course, there’s no guarantee that other courts will follow Chagolla in interpreting their own statutes, so SCI encourages any business involved in such litigation to pursue arguments that more details of alleged misclassification practices must be alleged for the case to survive dismissal.

[1] See Nev. Rev. Stat. Ann. § 357.010 et seq.