Lyft just agreed to pay more than $12 million to settle a driver lawsuit - here's what that means for its drivers

On Tuesday, Lyft agreed to settle a proposed class-action lawsuit with its drivers in California.

Lyft agreed to pay $12.25 million to its drivers in the settlement, which is subject to the approval of a San Francisco federal judge.

Both Lyft and its ride-hailing rival Uber have faced separate lawsuits from drivers in San Francisco federal court.

Drivers for both companies are currently classified as contractors, but the ones who have brought lawsuits against both companies contend they're misclassified and should actually be considered W-2 employees, a status that would grant more workplace protections.

Shannon Liss-Riordan, who represents the Lyft drivers in the case (and is also representing the Uber drivers challenging Uber in its case in California), said in a statement that the settlement "will result in some significant changes that will benefit the drivers."

Here's what those changes are.

• The $12.25 million Lyft has agreed to pay will be shared among California's 100,000 Lyft drivers, depending on how often they drive for Lyft. This is expected to serve as a reimbursement for expenses that Lyft would have paid back to drivers if they were employees.
• The introduction of a "favorite driver" option. Passengers will be able to tag drivers as their favorites. Favorite drivers will receive added benefits, according to Liss-Riordan.
• Lyft must warn drivers before deactivating them from the Lyft system. This is a workplace protection that hadn't previously been in place for Lyft's drivers. Lyft must provide a reason for deactivating drivers, who will be given the opportunity to improve their performance before being deactivated. This will be applied nationwide.
• If a driver doesn't think he or she was deactivated for a permitted reason, he or she can challenge Lyft's decision to deactivate the driver at Lyft's expense. This will also be applied nationwide.

Notably, the settlement does not involve shifting Lyft drivers from contractors to W-2 employees. Lyft's drivers will continue to operate as contractors, though they now have significant workplace protections.

Currently Lyft (and Uber) drivers are so-called "1099" independent contractors, called that because of the 1099 IRS form they fill out. Because they're not employees of the company, they do not receive certain benefits, like overtime pay or reimbursement for expenses like gas or mileage.

Both the Uber and Lyft cases have been closely watched because a wholesale change from contractors to employees could cost either company tens of millions of dollars -or more.

Uber's California class-action suit goes to trial on June 20.