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A San Francisco judge ordered Uber and Lyft to convert their drivers to employees after a "prolonged and brazen refusal to copy with California law."
"Defendants may not evade legislative mandates merely because their businesses are so large that they affect the lives of many thousands of people," wrote San Francisco Superior Court judge Ethan Schulman.
The catch: Schulman stayed the injunction so it won't go into effect for 10 days, giving the companies a window to appeal the ruling. Both are expected to file an appeal and ask for another, longer stay pending that outcome, meaning there could be another protracted legal fight and delay before drivers actually become employees.
Regardless, it's still a symbolic win for the state of California and labor advocates who argue the drivers should be classified as employees. In May, California state attorney general Xavier Becerra sued Uber and Lyft for worker misclassification. In the ruling, the judge sided with Becerra and delivered an injunction forcing Lyft and Uber to comply with A.B. 5, the gig economy law that would convert many independent contractors to employees.
Meanwhile, in addition to their appeals, Uber and Lyft are backing a proposition in the November election that would exempt their businesses from A.B. 5. That may be another monumental test for this contractors vs. employees debate. "Drivers do not want to be employees, full stop," Lyft said in a statement. "We'll immediately appeal this ruling and continue to fight for their independence. Ultimately, we believe this issue will be decided by California voters and that they will side with 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," Uber said.
While some drivers are against A.B. 5, the judge said that driver surveys did not factor into his decision. "A.B. 5 may be unpopular among some of the Defendants' drivers, but a lawsuit is not a popularity contest," he wrote.
An Uber analysis previously showed that the law could raise rider prices between 20% to 40% in San Francisco and San Diego, and as much as 80% to 100% in other California cities like Palm Springs or Fresno.
Both businesses have also seen demand plunge during the pandemic, but the judge viewed it as an ideal time for both companies to reset their business plans. (Uber disagreed, arguing that state leaders "should be focused on creating work, not trying to shut down an entire industry during an economic depression.")
"Now, when Defendants' business is at an all-time low, may be the best time (or the least worst time) for Defendants to change their business practices to conform to California law without causing widespread adverse effects on their drivers," he wrote.
While nothing changes overnight, the ruling is the most significant decision Uber and Lyft have faced yet. Going forward for the two companies, it's a matter of appealing long enough to find out the outcome of the November ballot measure.
Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.