(Photos: Jason Doiy/Diego M. Radzinschi/ALM)

Lyft Inc. embarked on its investor road show this week for an upcoming initial public offering that will make it one of the first gig economy companies to go public.

The San Francisco-based ride-hailing company's IPO is likely to kick off a year of public offerings from the gig economy's big names, including rival Uber Technologies Inc. and hospitality startup Airbnb. For investors, it's a chance to bet on the gig economy as related labor laws are up for debate in U.S. states, particularly California, and abroad.

“We're in a bit of a state of flux,” said Rich Meneghello, a partner at Fisher & Phillips. “We don't know exactly what the California legislature is going to spit out.”

In a March 1 S-1 filing with the U.S. Securities Exchange Commission, Lyft listed potential legal proceedings that classify “a driver of a ridesharing platform as an employee” as a risk to its business that could require it to reimburse drivers, change current practices and hurt its brand.

In its S-1, Lyft reiterated its position that drivers are contractors. Both Lyft and Uber currently face misclassification suits from drivers and other contract workers who allege they should qualify as company employees entitled to benefits. The two companies declined request for comment.

“In general, I think there's a constant risk of litigation that you've seen with all these companies from their inception, from the whole start of the gig economy,” said Geoff Mohun, the general counsel of workforce management company iWorkGlobal.

Last year, the California Supreme Court set a higher bar for contractor classifications in Dynamex Operations West v. Superior Court of Los Angeles County, when it ruled a delivery driver should have been classified as an employee. The court adopted an “ABC test” used in Massachusetts and New Jersey to determine contractor status: workers were free from company control and direction, performed work outside of the company and is independently working in an established trade.

Teri Wilford Wood, of counsel at Jackson Lewis and former chief global labor and employment counsel at IBM, said gig economy companies going public should keep an eye on California's new standards and “be mindful” of possible law changes as they shape their public business. Mohun suggested gig economy businesses going public set the “ABC test” as their own standard to lower future risks for investors.

“Build a program that is compliant and don't vary from the best practices, at the highest standard. I would look to the 'ABC test' and make that the standard,” he said. Companies should also make sure contract workers are content with their current classification, as much as possible, to prevent suits, Mohun added.

To avoid the risks of misclassification suits and changing laws altogether, Meneghello said some companies have swapped contractors for employees and adapted their business practices. Others, he said, “recognize there might be risks but they're going to run the business model anyway.”

Read More:

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