A deal between Lyft and lawyers representing some drivers, in which the ride-hailing app would pay $12.25 million to end a lawsuit, has been thrown out by the federal judge overseeing the case.

In a 21-page order (PDF), US District Judge Vince Chhabria says that the $12.25 million payment seriously shortchanges the proposed class of drivers—and the state of California. Plaintiffs' lawyers said the $12.25 million was a reasonable cut for the $64 million that drivers deserved for mileage reimbursements they would have received as employees. But Chhabria's calculation of that reimbursement, using the drivers' own methodology, was that it's worth more than $126 million.

"The drivers were therefore shortchanged by half on their reimbursement claim alone," he concludes.

In addition, the drivers had a claim for penalties under the Private Attorneys General Act (PAGA), a law that allows for private enforcement of state labor laws with the state receiving 75 percent of the proceeds. Under the proposed deal, the the PAGA portion of the claim was discounted to $122,250, less than 1 percent of the total settlement.

Chhabria says the PAGA penalty "makes no sense" and was created with an "arbitrary" calculation. "Nor did either side have a rational explanation for the value assigned to the PAGA claim, or for why they attributed such a minuscule portion of the settlement to that claim."

If all drivers in the class had made a claim, the $12.25 million settlement would have resulted in an average payout of $53.02 to part-time drivers and $676.19 to full-time drivers. That figure gives a 50 percent "premium" to the full-time drivers' claims, since in the judge's view they likely had a stronger case for being misclassified as contractors.

The relatively low sum of money could be explained away if the non-monetary terms of the settlement were significant, Chhabria notes. But they aren't. The lawsuit claimed that Lyft drivers were really employees who had been misclassified as independent contractors and said they weren't properly paid for their expenses, among other things. Those things won't change under the proposed agreement, which instead focused on when and how Lyft can terminate drivers.

The Teamsters union, which is seeking to represent Lyft drivers, also objected to the settlement, saying that it should have changed the drivers' classification to employees. Chhabria mostly discounts the Teamsters' claims, saying they are policy concerns better directed to the legislature. He says the union's assertion that the changes are "largely illusory" is likely an overstatement. "The changes aren't revolutionary, but they are not nothing, either," Chhabria writes.

More money, fewer problems

Overall, Chhabria sees serious problems with this deal. But they're largely, if not entirely, concerns that can be solved with money. The mileage reimbursement and PAGA valuations are the "fundamental defects" that need to be corrected.

Former Lyft drivers Patrick Cotter and Alejandra Maciel sued Lyft in 2013, saying they shouldn't have been classified as contractors. The suit said they were denied breaks, overtime pay, and other benefits of being an employee.

One of the problems assessing proper compensation for the drivers is that the proposed class is so disparate. Only 755 members of the 150,000-person class are full-time drivers, defined as driving at least 30 hours per week for at least half of the weeks they worked for Lyft. More than two-thirds of the class drove less than 60 hours for Lyft in total.

The settlement discussion is an odd one, because both the judge and lawyers are effectively trying to guess what a jury would do if the case went to trial. "A jury might be reluctant to conclude that Lyft 'employs' people who only give occasional rides when their schedules permit," Chhabria wrote. "But the outcome either way is far from assured."

In a separate action, Lyft's bigger competitor Uber reached a deal with the Los Angeles and San Francisco district attorneys yesterday, in which the company will pay $25 million to settle a lawsuit claiming that its background checks on drivers were insufficient. The lawsuit also said that a $4 fee for trips to airports should have been paid to the airports but wasn't.

Under the deal, Uber will pay $10 million within 60 days, and $15 million will be waived if Uber follows the settlement terms for two years.