A California judge granted a preliminary injunction Monday requiring Uber and Lyft to stop classifying their drivers as independent contractors pending further action by the court. The order will take effect after 10 days, as the companies requested a brief stay during the appeals process.
If upheld, the ruling could have serious implications for Uber and Lyft, both of which are not yet profitable and have seen their ride-hailing businesses suffer during the pandemic. By classifying their drivers as independent workers, rather than employees, the companies have not had to pay for costly benefits that come with a full-time staff.
California Attorney General Xavier Becerra requested the injunction as part of a lawsuit he brought in May along with city attorneys from San Francisco, Los Angeles and San Diego. The suit, filed in San Francisco Superior Court, alleged Uber and Lyft violated the state’s new law known as Assembly Bill 5 (AB5), which was created as a way to classify gig workers as full employees and ensure benefits from their employers. Uber and Lyft were among a group of tech companies that have previously opposed the bill, arguing their workers enjoy the flexibility of creating their own schedules as contractors.
California officials sought an injunction on the alleged misclassification and restitution for workers and civil penalties worth up to hundreds of millions of dollars.
Shares of Uber were down 0.8% during extended trading Monday and Lyft shares were down 1.7%.
Both companies said they would appeal the ruling immediately.
“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,” an Uber spokesperson said. “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.”
“Drivers do not want to be employees, full stop,” Lyft said in a statement. “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.”
“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 in a statement. “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.”