The judge gives an initial injunction requiring Uber and Lyft to stop drivers classifying them as contractors

Uber Technologies Inc. Chief Executive Officer of Dara Khosroshahi speaks during an interview in Tokyo, Japan on Wednesday, July 3, 2019.

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A California judge on Monday granted a preliminary injunction 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.

If justified, the regime could have serious implications for Uber and Lyft, who are both not yet profitable and have seen their ride-hailing suffer during the epidemic. By classifying their drivers as independent workers rather than employees, companies have not had to pay for the expensive benefits that come with full-time employees.

California Attorney General Javier Becerra requested the injunction in May under a lawsuit with lawyers in the city of San Francisco, Los Angeles and San Diego. The suit, filed in San Francisco Superior Court, Uber and Lyft violated the state’s new law, known as Legislative Assembly Bill 5 (AB5), for classifying gig workers as full employees and Made to ensure benefits from employers. Uber and Lyft were among a group of tech companies that have previously opposed the bill, arguing that their workers enjoy the flexibility of creating their own schedules as contractors.

California officials sought injunctions on alleged misconduct and reinstatement for workers and awarded civil penalties of up to hundreds of millions of dollars.

Uber shares declined 0.8% during Monday’s trade and Lyft shares fell 1.7%.

A spokesperson for Uber said in a statement that the company “plans to file an immediate emergency appeal on behalf of California drivers. Most drivers want to operate independently, and we have in our app to make sure Already significant changes have been made that remain the case. ” Under California law. When more than 3 million Californians are without jobs, our elected leaders must focus on creating work, not trying to shut down the entire industry during an economic depression. ”

Lyft did not immediately respond to a request for comment and a spokesman for Becerra’s office did not immediately provide comment.

Uber CEO Dara Khosroshahi in a letter to President Donald Trump in March advocated a “third way” to classify workers as the first round of coronovirus relief measures were being negotiated. He argued that there should be a way for workers to gain safety without sacrificing the flexibility of contract work.

In the ruling, Judge Ethan Shulman, recognizing the value of flexibility offered by Uber and Lyut, wrote, “The court does not take defendants lightly that initial injunction may have an adverse effect on some of their drivers, many of whom Desire. To continue to work with flexibility as they have in the past, and may have commitments that are not impossible for them to become full-time employees. ”

But Shulman wrote that the injunction would have “far-reaching effects” due to concerns from Uber and Lyft, which only defended defendants’ prolonged and shameless refusal to comply with California law. Defendants cannot carry out legislative mandates simply because their businesses are so large. They affect the lives of thousands of people. ”

Shulman wrote that any effect of the injunction on Uber and Lyft’s businesses would be mitigated by the fact that both stated that “most of their drivers operate on a casual or sporadic basis” and the fact that the coronavirus epidemic has Demand for defendants services has greatly reduced. ”

“Now, when defendants’ ridership is at an all-time low, it may be the best time (or at least the worst) time for defendants to change their business practices in line with California law without causing widespread adverse effects on their drivers , “Shulman wrote.

Uber and Lyft sought to delay the ruling until Uber’s constitutional challenge on AB5 or until voters were weighed on a ballot, unless they sponsored them to exempt them from the law. The court rejected those requests.

However, the legal battle for the ruling Uber and Lyft does not end. Last week, California’s labor commissioner announced a lawsuit against companies for wage theft. The commission considered the wages to be received that were currently owed to drivers classified as contractors. The suits were filed in Alameda County Superior Court.

This story is developing. Check back for updates.

-Deardre Bossa of CNBC contributed to this report.

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