Trouble For Uber And Lyft After California Ruling?

Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) have long fought with politicians over whether their gig workers are technically employees or independent contractors.

The two companies face renewed problems over the issue this week as a California judge on Monday issued a preliminary injunction requiring them to stop classifying drivers as independent contractors. The injunction will go into effect after 10 days because Uber and Lyft requested a brief stay during the appeals process.

The injunction is a result of a lawsuit brought in May by California Attorney General Xavier Becerra with city lawyers from San Francisco, Los Angeles and San Diego, alleging Uber and Lyft violated Assembly Bill 5 (AB5), which classifies gig workers as employees, therefore requiring benefits from their employers.

"The court has weighed in and agreed: Uber and Lyft need to put a stop to unlawful misclassification of their drivers while our litigation continues," Becerra said.

"While this fight still has a long way to go, we're pushing ahead to make sure the people of California get the workplace protections they deserve. Our state and workers shouldn't have to foot the bill when big businesses try to skip out on their responsibilities. We're going to keep working to make sure Uber and Lyft play by the rules."

Both Uber and Lyft immediately fired back against the ruling as it threatens their business models.

"When over 3 million Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry during an economic depression," Uber said.

Lyft replied to the injunction by saying

"Drivers do not want to be employees, full stop. We'll immediately appeal this ruling and continue to fight for their independence. Ultimately, we believe this issue will be decided by California voters and that they will side with drivers."

California voters will be able to vote in November on an amendment to AB5 called Proposition 22 that will exempt drivers for app-based transportation and delivery companies from being classified as employees in the state. Proposition 22 is funded by Uber, Lyft, Door
Dash, Instacart and Postmates.

Uber CEO Dara Khosrowshahi warned yesterday that Uber could temporarily suspend service in California if it is forced to classify drivers as employees. Khosrowshahi also warned, although admitted not likely, that if Uber is forced to classify drivers as employees that customers could see higher rates, fewer route options and service concentrated to just major cities.

"We think we comply by the laws, but if the judge and the court find that we're not, and if they don't give us a stay to get to November, then we'll essentially have to shut down Uber until November when the voters decide," Khosrowshahi said.

The outcomes of the case brought by California and the vote this November will be important to watch as halting services in California will mean losing revenue from one of the largest markets for ridesharing companies.

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