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Uber Granted Stay in Driver-Classification Case, Shares Pop

Zacks Equity Research
·4 min read

Uber Technologies’ UBER shares got a boost and closed yesterday’s trading session 6.8% higher following news that the company has been granted an emergency stay on a preliminary injunction that would have forced it  to categorize its drivers as employees. The injunction order was set to go into effect on Aug 20. Meanwhile, the court is reviewing Uber’s appeals on the driver-classification case.

The company had earlier warned of a temporary suspension of operations in California in case the injunction order is not stayed beyond the 10-day period, which is what the judge of San Francisco Superior Court had decided on, while granting the preliminary injunction order on Aug 10. Uber had requested for an extension of this 10-day stay, but was initially denied. On a second appeal, the company was granted a stay extension.

An Uber spokesperson told TechCrunch, “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.”

While oral arguments in this case are set to begin in mid-October, Uber, carrying a Zacks Rank #3 (Hold), must submit a briefing by early September confirming that it has developed a plan to make its drivers employees in case the injunction is upheld and Proposition 22 (Prop 22) fails to pass in California.

Prop 22 is a November ballot initiative funded by gig economy companies such as Uber and its rival Lyft LYFT, which is embroiled in the same legal battle due to its similar business model of classifying drivers as independent contractors. With Prop 22, California voters get a chance to decide whether their drivers should be classified as employees or independent contractors. However, this initiative requires Uber and Lyft to provide their drivers with a number of worker benefits, including a certain amount of guaranteed earnings, a healthcare stipend and accident insurance for on-the-job injuries, which they are currently exempted from.
 
In a blog post, Zacks Rank #3 Lyft said, “For multiple years, we’ve been advocating for a path to offer benefits to drivers who use the Lyft platform — including a minimum earnings guarantee and a healthcare subsidy — while maintaining the flexibility and control that independent contractors enjoy. This is something drivers have told us over and over again that they want.”

Lyft contended that if the company is forced into a new business model of classifying drivers as employees, “passengers would experience reduced service, especially in suburban and rural areas”, while “80% of drivers would lose work and the rest would have scheduled shifts, and capped hourly earnings”. Further, “lower-income riders trying to make it to essential jobs and medical appointments would be faced with unaffordable prices”.

Key Picks

Some better-ranked stocks in the Internet - Services industry are ANGI Homeservices Inc ANGI and Etsy Inc ETSY. While Etsy sports a Zacks Rank #1 (Strong Buy), ANGI Homeservices carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of ANGI Homeservices and Etsy have rallied more than 70% and 100% respectively in a year’s time.

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