Please ensure Javascript is enabled for purposes of website accessibility

Judge Rules Against Uber, Lyft in California Effort to Convert Drivers to Employees

By Lou Whiteman – Updated Aug 10, 2020 at 4:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The companies are likely to appeal.

A California judge late Monday granted the state of California a preliminary injunction against Uber Technologies (UBER -1.01%) and Lyft (LYFT -1.50%), telling the rideshare companies to comply with a state law requiring them to classify drivers as employees.

The state, along with a number of California's largest cities, sued earlier this year to enforce a new California labor law that prohibits so-called "gig economy" companies from relying on contractors that aren't entitled to the benefits full-time employees normally enjoy.

Uber has estimated that complying with the law would require it to raise prices by as much as 30% in San Francisco and to more than double prices in more remote areas.

A rideshare customer opens an app in a car.

Image source: Getty Images.

Superior Court Judge Ethan Schulman in a ruling late Monday first reported by Bloomberg Law agreed with California that Uber and Lyft are in violation of California Assembly Bill 5, which said workers can only be considered contractors if they perform duties outside of the usual course of a company's business.

The judge paused the injunction for 10 days to give the companies time to appeal the decision.

The ruling could have serious implications for the business models of Uber, Lyft, and other tech companies that rely on contractors. The companies are struggling to make money even under the current contractor setup and can ill-afford the expense of adding thousands to their payrolls during a potential extended economic downturn.

Uber CEO Dara Khosrowshahi, perhaps in anticipation of the judge's ruling, on Monday wrote an oped in The New York Times calling for the U.S. to rethink labor laws and to find "a third way" between full-time employees and contractors that better fits the gig economy model.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Uber Technologies Stock Quote
Uber Technologies
$28.50 (-1.01%) $0.29
Lyft Stock Quote
$11.14 (-1.50%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.