Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) were granted a stay by a California appeals court, giving them an extension of time to comply with the state's new gig economy labor law, Assembly Bill 5 (AB5), which ordered many contract workers to be reclassified as employees and afforded them the same benefits enjoyed by regular employees.

Management at Lyft had been planning to suspend operations in the Golden State at midnight Pacific Time on Thursday. A previous court order had given the companies until August 25 to comply with the California mandate reclassifying rideshare drivers as employees, after the companies historically classified them as contractors.

Young man holding a cellphone and wearing a backpack hailing a ride on a city street.

Image source: Getty Images.

"We are glad that the Court of Appeals recognized the important questions raised in this case, and that access to these critical services won't be cut off while we continue to advocate for drivers' ability to work with the freedom they want," said an Uber spokesperson in a statement. 

The new law followed a California Supreme Court ruling, Dynamex Operations West, Inc. v. Superior Court, which imposed a three-pronged test to determine if a worker is an employee or an independent contractor. The test requires that the worker is free from control and direction of the hiring entity, that the worker performs tasks outside the hiring entity's normal course of business, and that the worker is engaged in the trade or business performed for the hiring entity.  

Uber and Lyft had argued that they did not control the workers but were merely a technology platform connecting the drivers and riders.

Proposition 22, a ballot measure backed by Uber and Lyft, would exempt both ride-hailing services and food-delivery businesses like Grubhub (NYSE: GRUB) and privately held DoorDash from complying with AB5. California voters will make a decision regarding the proposition on Election Day.