Dara Khosrowshahi, chief executive officer of Uber Technologies Inc., speaks during an interview in Tokyo, Japan, on Wednesday, July 3, 2019.
Akio | Bloomberg | Getty Images
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 appellate review process.
California Attorney General Xavier Becerra requested the injunction as part of a lawsuit he brought in May along with city attorneys from San Francisco, Los Angeles and San Diego. The suit, filed in San Francisco Superior Court, alleged Uber and Lyft violated the state’s new law known as Assembly Bill 5 (AB5), which was created as a way to classify gig workers as full employees and ensure benefits from their employers. Uber and Lyft were among a group of tech companies that have previously opposed the bill, arguing their workers enjoy the flexibility of creating their own schedules as contractors.
California officials sought an injunction on the alleged misclassification and restitution for workers and civil penalties worth up to hundreds of millions of dollars.
Shares of Uber were down 0.8% during extended trading Monday and Lyft shares were down 1.7%.
Uber CEO Dara Khosrowshahi advocated for a “third way” to classify workers in a letter to President Donald Trump in March as the first round of coronavirus relief measures were being negotiated. He argued there should be a way for workers to gain protections without sacrificing the flexibility of contract work.
In the ruling, Judge Ethan Schulman recognized the value of flexibility offered by Uber and Lyft, writing, “The Court does not take lightly Defendants’ showing that a preliminary injunction may also have an adverse effect on some of their drivers, many of whom desire the flexibility to continue working as they have in the past, and may have commitments that make it difficult if not impossible for them to become full-time employees.”
But Schulman wrote that Uber and Lyft’s concerns that the injunction would have “far-reaching effects” had “only been exacerbated by Defendants’ prolonged and brazen refusal to comply 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.”
Schulman wrote that any impact of the injunction on Uber and Lyft’s businesses would likely be mitigated by the fact that both have said the “vast majority of their drivers work on a casual or sporadic basis” and the reality that the coronavirus pandemic has “drastically reduced the demand for Defendants’ services.”
“Now, when Defendants’ ridership 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,” Schulman wrote.
The ruling does not end the legal battles for Uber and Lyft, however. Last week, California’s Labor Commissioner announced lawsuits against the companies alleging wage theft due to misclassification. The commission seeks to recover wages it believes were owed to drivers currently classified as contractors. The suits were filed in Alameda County Superior Court.
This story is developing. Check back for updates.
Subscribe to CNBC on YouTube.
WATCH: Delivery workers are risking their lives to bring people groceries during coronavirus — here’s what it’s like for them