Uber and Lyft Ordered by Judge to Stop Classifying Drivers as Independent Contractors.

On Monday, Uber and Lyft (LYFT) were ordered by Judge Ethan Schulman of the San Francisco Superior Court to stop classifying their drivers as independent contractors and instead, follow the governing law of the state and treat their drivers as employees.

A 10-day stay was further issued before the preliminary order is enforced, this would allow both companies to appeal, but if the court order stands, both companies may have to reconsider their drivers as employees and extend the benefits that are due to them, and not just as contractors who are on their own.

Schulman wrote in the order that “Were this reasoning to be accepted, the rapidly expanding majority of industries that rely heavily on technology could with impunity deprive legions of workers of the basic protections afforded to employees by state labor and employment laws,"

Sometime last year, a measure passed by the state legislature, AB5 (Assembly Bill 5), was signed into law by Gov. Gavin Newsom. This is a law that requires companies to meet certain requirements before workers can be regarded as contractors and not employees.

The above diagram shows how Lyft's stock has performed in the past year. 

The law was specifically made for gig drivers who work for Uber and Lyft who are the defendants here. Uber already reported a 75% drop in their bookings in the second quarter, the cause of this could easily be pointed to the current pandemic, COVID-19.

It was suggested by Judge Schulman that this is a period companies could use to conform to California worker classification laws, with little impact on their driver base which is in existence.

The judge further opined that the government has “amply demonstrated a reasonable probability of prevailing on their claim that Defendants are misclassifying their drivers and the arguments from the defendants don’t have any merit,” 

In response to the ruling which was issued, a spokesperson from Uber was quoted to have said “the court’s ruling is stayed for a minimum of 10 days, and we plan to file an immediate emergency appeal on behalf of California drivers. 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 during an economic depression.”

Lyft also made it known that the drivers don’t want to be employees and they will continue to fight for the independence of the drivers as they also look forward to appealing the rulings made against them by the court.

This recent ruling has seen the shares of both companies; Uber and Lyft drop, as no one can tell the extent of the impact this would have on the company, should the ruling stand.

 “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. 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.” California Attorney General Xavier Becerra said as he applauded the decision of the court.