Uber and Lyft should consider their drivers as employees 1:37
(CNN Business) -
In a blow to Uber and Lyft, a California appeals court said Thursday that these two companies must reclassify their drivers as employees rather than independent contractors, affirming an earlier court decision.
The ruling marks a significant advance in a months-long legal fight between the companies and the state of California, which in May sued Uber and Lyft and claimed they were violating state law.
It also puts increased pressure on companies to successfully pass their corporate-driven measure seeking to be exempted from California law.
Uber and Lyft receive temporary postponement against ruling ordering them to reclassify their drivers as employees in California
Uber and Lyft face the law in California 0:59
The state has argued that by classifying their drivers as contractors, Uber and Lyft are depriving those workers of the benefits to which they are entitled under a law that took effect on January 1.
The law, known as Assembly Bill 5 or AB-5, says that companies can only treat their workers as independent contractors if those people are free from control of the company and perform work outside of the company's core business. .
A reclassification of their workers would represent a radical change imposed on the two companies, which have created massive fleets of drivers by treating them as independent contractors and not providing them the benefits to which they would be entitled as employees, such as minimum wage, overtime, leave for paid sickness and unemployment insurance.
In August, a California court ordered Uber and Lyft to reclassify their drivers in the state as employees, resulting in a victory for the state.
At the time, both companies had threatened to close if they were forced to reclassify their workers.
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The ruling prompted the companies to appeal.
But Associate Judge Jon Streeter of the appeals court wrote in his decision Thursday that the court order preventing Uber and Lyft from classifying their drivers as independent contractors was valid.
"It is wide-ranging, to be sure, but so is the scale of the alleged violations," he wrote.
Uber and Lyft, will they disappear in California?
3:23
Uber and Lyft have a 30-day deadline
"Uber and Lyft have used their strength and influence to resist treating their drivers as workers entitled to those check and benefit protections," Attorney General Xavier Becerra said in a statement after the ruling.
"It's time for Uber and Lyft to play by the rules."
The change will not happen immediately.
Uber and Lyft still have 30 days to comply with California law after the appeals process ends.
That clock generally starts 61 days after the appellate court transfers jurisdiction back to the trial court, assuming the opinion is not challenged.
It is unclear whether Uber and Lyft will appeal Thursday's ruling to the California Supreme Court, although Uber said in a statement to CNN Business that "we are considering our appeal options."
The November election could also make that judicial process moot.
Uber and Lyft, along with delivery services using drivers like Uber-owned DoorDash, Instacart and Postmates, have invested $ 188 million in a California ballot initiative known as Proposition 22 that aims to circumvent AB-5. .
If Proposition 22 passes, transportation and delivery drivers would continue to be treated as independent contractors.
There would be some trade-offs in benefits, including a minimum income guarantee based on "time committed" when a driver is complying with a travel or delivery request, but not the time spent waiting for an order.
"This decision makes it more urgent than ever for voters to support drivers and vote yes on Prop. 22," Lyft spokeswoman Julie Wood said in a statement to CNN Business on Thursday.
Uber also turned the vote on Proposition 22 in its statement, saying that if the measure is not approved, it will "prevent rideshare drivers from continuing to work as independent contractors, leaving hundreds of thousands of Californians out of work and probably closing carpooling in much of the state.
Last month, the CEOs of both companies told the California appeals court that they planned to comply with the law if the lower court's injunction was upheld and Prop. 22 failed.
But compliance "would require at the very least fundamental changes to Uber's platform," wrote Uber CEO Dara Khosrowshahi.
He said the change would "drastically restrict" the number of drivers Uber could hire, among other measures.
Lyft CEO Logan Green wrote that "such an implementation may include the cessation of carpool operations in all or some parts of California."
- Jill Disis contributed to this report.
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