Uber, Lyft Must Classify Drivers As Employees, In Compliance With California Law, Judge Rules

Uber Technologies Inc UBER and Lyft Inc LYFT must classify their workers as employees with benefits, a judge in San Francisco, California, ruled Monday, Bloomberg reported.

What Happened

Ride-hailing companies’ efforts to avoid paying benefits, such as health care and overtime, were stymied in court, in a case brought on by California officials who want to enforce state labor law, according to Bloomberg.

Judge Ethan Schulman of the Superior Court said that the continuing classification of gig economy drivers as independent contractors defies both common sense and economic reality.

The two ride-sharing companies’ “insistence that their businesses are ‘multi-sided platforms’ rather than transportation companies is flatly inconsistent with the statutory provisions that govern their businesses as transportation network companies,” Schulman reportedly said.

An Uber spokesperson claimed that a vast majority of drivers want to work independently and said that the focus of the elected leaders should be on “creating work” and not on shutting down “an entire industry during an economic depression.”

Why It Matters

The ruling comes at a time when coronavirus has severely impacted ride-hailing firms. Uber reported a 67% fall in ride revenue during its June quarter. Lyft is due to declare its second-quarter earnings on Wednesday.

The Democrat-controlled House passed a legislation similar to that of California’s in February, which also has the support of the party’s presidential candidate Joe Biden.

The two companies are putting up $110 million in support of a ballot measure that will push for exemption of employee status for gig-economy drivers, but promises to extend other perks to them, according to the San Francisco Chronicle.

Price Action 

Uber shares traded about 2.4% lower in the after-hours session Monday at $31.50 and Lyft shares traded nearly 2.6% lower at $30.25.