A California judge granted a preliminary injunction Monday requiring Uber and Lyft to stop classifying their drivers as independent contractors pending further action by the court. The order will take effect after 10 days, as the companies requested a brief stay during the appeals process.

If upheld, the ruling could have serious implications for Uber and Lyft, both of which are not yet profitable and have seen their ride-hailing businesses suffer during the pandemic. By classifying their drivers as independent workers, rather than employees, the companies have not had to pay for costly benefits that come with a full-time staff. 

The so-called gig-economy law was one of the most significant challenges facing Uber and Lyft when the year began, as governments started to demand many of the same labor protections and other regulatory requirements that the companies avoided in devising their business models.

The companies’ woes extend beyond the ruling, with the coronavirus pandemic having hurt their core ride-hailing businesses. Uber reported steep declines in the first quarter, as stay-at-home orders prompted consumers to scale back on local travel. It posted another big loss last week. Both companies cut costs, including staff, to try to ride out the crisis. Uber and Lyft have argued that they are platforms that facilitate transactions between drivers and passengers, not transportation companies.

“Uber goes even farther,” the judge said in his ruling, “asserting that the platform itself—the smartphone app—is Uber’s business, and that its actual employees work in engineering, product development, marketing and operations.”

“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,” San Francisco Superior Court Judge Ethan P. Schulman wrote. The companies had asked the judge to postpone the litigation, citing among other reasons a proposed ballot initiative for November that would exempt them from the California law, known as Assembly Bill 5.

Todd Horwitz Chief Strategist BubbaTrading.com
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