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California court says Uber, Lyft must classify drivers as employees

A California state appeals court ruled on Thursday that Uber and Lyft must classify their drivers in the state as employees. Yahoo Finance’s Alexis Keenan joins Akiko Fujita to break down the details.

Video Transcript

AKIKO FUJITA: A legal setback for Uber and Lyft in California. An appeals court there ordering the ridesharing companies to comply with a preliminary injunction that required the firms to classify their drivers as independent contractors.

Alexis Keenan is tracking that story for us. And, Alexis, we're just over a week out from the general election where we've got that Proposition 22 measure on the ballot over in the state. What does this ruling from the court mean for the outcome of that?

ALEXIS KEENAN: Yeah, so, Akiko, what's really going to end up determining this outcome is the outcome of that Proposition 22 vote that comes on election day. With that ballot measure, the key will be, really, the vote will happen before this court's ruling would take effect. It would take about 90 days for this court ruling to be implemented against the companies. So really close eyes on that vote.

Now, the dispute, of course, is over that controversial AB 5 law. It technically became effective back in January of this year, and it puts those ride-hailing drivers among certain gig workers that are required to get the employee status. And, in turn, of course, they would get some benefits, like minimum wage, overtime. But, also, the state would get a windfall and a fresh source of payroll taxes there.

So this court decision, it really, really narrows the avenues for these companies. And, look, this includes not only Uber and Lyft, but also DoorDash, Instacart, Uber's Postmates, and other companies that have these gig workers-- really to keep them as independent contractors. The paths are narrowing in that it's going to be up to this Proposition 22. Because, yes, they do have the opportunity to appeal this decision, but there's no guarantee that the California Supreme Court would go ahead and rule in their favor.

Now, Lyft did respond to this decision by the appellate court. They said that the ruling makes it more urgent than ever for voters to stand with drivers and vote yes on Prop 22. Uber with a very similar statement. They also said that without a yes vote to this measure that hundreds of thousands of California drivers would be out of work. They also said that the service would likely be shut down across most of California. The company also says that 72% of its drivers support this hybrid model that the companies are proposing, and that would give drivers some minimum earnings while they're working and also some health care benefits.

So it's estimated that there's about 400,000 to 1 million drivers working just between those two apps in the state. But whether or not they are bluffing here and whether they would in fact shut down the service is yet to be seen.

AKIKO FUJITA: And, Alexis, we've seen a lot of these companies pour millions into this push for Prop 22. What do we know about where the race stands right now, with just about a week out?

ALEXIS KEENAN: So, together, the gig companies, they have poured 114, almost $115 million into this measure. There's not really a consensus though. There are drivers who are on both sides of the aisle here. Some of them do want to remain independent contractors, and others want those employee benefits.

Now, one would think that those drivers that spend more time driving and more time this as being their full-time job perhaps would want those benefits. Those that want the flexibility and maybe pick up some work here and there, they might want to stay as independent contractors. But, still, the jury's out on how this is going to go. No consensus here.