Uber and Lyft drivers in California must now be classified as employees instead of independent contractors, a shift that would guarantee benefits like overtime, sick leave and expense reimbursement for workers who make up much of the freewheeling gig economy.
San Francisco Superior Court Judge Ethan P. Schulman made the ruling Monday, though it might not take effect for some time, as Uber and Lyft immediately said they’d appeal to a higher court.
Lawyers for Uber and Lyft argued drivers are not fundamental to the business, claiming the companies are “multi-sided platforms" whose activities encompass much more than transportation. But Schulman rejected those arguments, writing in a 34-page opinion that the argument “flies in the face of economic reality and common sense.”
“To state the obvious, drivers are central, not tangential, to Uber and Lyft's entire ride-hailing business,” Schulman said.
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The ride-hailing apps claimed the decision threatens to shut them down during the economic downturn witnessed during the coronavirus pandemic when many people who have lost their jobs have become Uber and Lyft drivers.
"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,” Lyft spokesperson Julie Wood told Business Insider.
An analysis conducted by Uber economist Alison Stein predicted the platform would have to raise its prices in California between 25% and 111% to account for the cost of providing benefits to drivers.
The lawsuit was filed by California’s Democratic Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Diego and San Francisco under a new California law that says companies can only classify workers as contractors if they perform work “outside the usual course” of their business.
The companies have already challenged the law in federal court, where their efforts to stop it from taking effect have, so far, failed. And they have pledged to spend more than a hundred million dollars to support a ballot measure in November that, if approved by voters, would exempt them from the law.
“Our state and workers shouldn’t have to foot the bill when big businesses try to skip out on their responsibilities,” Becerra said in a statement. "We’re going to keep working to make sure Uber and Lyft play by the rules.”
Uber, which has more than 100,000 drivers in California, announced last week it lost $1.78 billion in the past three months as millions of people stayed home during lockdown restrictions.
State officials have argued Uber and Lyft's behavior hurts more than just drivers, noting the companies don't pay into the state's unemployment insurance fund that covers benefits for people when they lose their jobs. The state's fund was quickly depleted following huge job losses because of the pandemic, resulting in the state borrowing billions of dollars from the federal government.
The Associated Press contributed to this report.