A California court has ordered ride hailing companies Uber and Lyft to reclassify their drivers in the state as employees, in accordance to a new law.
San Francisco Superior Court judge Ethan Schulman ruled that Uber and Lyft should reclassify their California drivers from their current status of independent contractors to employees. The companies will be given 10 days to appeal before the order takes effect.
The court ruling stated: "Now, when Defendant's ridership is at an all-time low, may be the best time (or the least worst time) for Defendants to change their business practices to conform to California law without causing widespread adverse effects on their drivers."
The AB-5 law
The court order comes following a filing made by California Attorney General Xavier Becerra and a coalition of city attorneys in late June for a preliminary injunction to force the companies to comply with the AB-5 law of the state.
The law, which took effect on January 1, states that companies must prove workers are free from company control and perform work outside the usual course of the company's business in order to classify workers as independent contractors rather than employees.
The injunction was part of a lawsuit filed in May, which accuses Uber and Lyft of depriving workers of protections, including a minimum wage, overtime, paid sick leave, and unemployment insurance, that would have been given to them as employees.
A ballot initiative has been funded by Uber, Lyft and DoorDash for $30 million each, with additional support from Instacart and Postmates. This will give the companies an exemption from the AB-5 law but the drivers will still receive some benefits.
The law has long been perceived as a potential existential threat to gig economy companies such as Uber and Lyft, which predicated a large part of their business on treating workers as independent contractors rather than employees.
Last week, lawsuits were filed by the California's Labor Commissioner's Office against Uber and Lyft for allegedly committing wage theft through their misclassification of drivers as independent contractors.
On Monday, Uber CEO Dara Khosrowshahi said: "Uber is ready, right now, to pay more to give drivers new benefits and protections. But America needs to change the status quo to protect all workers, not just one type of work."
Uber and Lyft's stand
The court order adds pressure to the struggles of both companies amidst the pandemic, which significantly cut demand for their core ride-hailing businesses. Both Uber and Lyft have announced layoffs and reported historical losses.
Lyft spokesperson Julie Wood said, "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," Wood claimed.
Last week, an Uber spokesperson issued in a statement, saying: "The vast majority of drivers want to work independently, and we've already made significant changes to our app to ensure that remains the case under California law."
"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," the spokesperson added.
