California wins ruling against Uber, Lyft: Judge says drivers are employees

Uber Technologies Inc. and Lyft Inc. were ordered Monday to convert their California drivers from independent contractors to employees with benefits, an early loss in a court battle that the gig economy can’t afford to lose.

The judge’s Monday ruling won’t be the last word, as the ride-hailing companies are expected to appeal the far-reaching preliminary injunction. If the companies are forced to reclassify their California drivers as employees, they would be on the hook for overtime, healthcare and other costly benefits.

The case brought by California officials to enforce Assembly Bill 5, a state labor law that took effect this year, is the most serious legal threat yet to the gig economy — and it comes at a particularly difficult time for the ride-hailing industry.

Decimated by travel restrictions related to the COVID-19 pandemic, Uber reported a wider loss and a 67% decline in ride revenue during the quarter that ended in June. Lyft is scheduled to report its quarterly results Wednesday.

The news erased some of Lyft’s stock gains Monday, and Uber shares ended the day down almost 2%.

San Francisco Superior Court Judge Ethan Schulman agreed with California Atty Gen. Xavier Becerra that Uber and Lyft are violating AB 5, which says workers generally can be considered contractors only if they perform duties outside the usual course of a company’s business. But he paused the injunction for 10 days so the companies can appeal his decision.

Uber and Lyft both said in response that most of their drivers prefer to be classified as contractors.

If Uber reclassifies its drivers as employees, ride prices would increase as much as 30% in San Francisco and as much as 120% in the less-populated Inland Empire, where demand is sparse, according to an analysis by Uber.

The author of AB 5, California Assemblywoman Lorena Gonzalez (D-San Diego) hailed the ruling, as did union leaders.

“The years-long ploy of these behemoth corporations to stall, obfuscate and flat-out break the law has failed,” Art Pulaski, head of the California Labor Federation, said in an emailed statement.