A California appeals court has ruled in favor of gig economy companies including rideshare and delivery network companies Uber Technologies, Inc.,LYFT, Inc., and DoorDash, Inc., allowing them to continue to treat their drivers as independent contractors in the state.
The latest court move overturns a 2021 decision by a lower court in California that barred the companies to follow Proposition 22, saying that it was unconstitutional.
Following the verdict, Uber and Lyft shares gained around 5 percent in the extended trading on Monday, and continues to rise in the pre-market activity today.
In the gig companies, people who work across services like food delivery and transport are paid for individual tasks rather than getting a regular wage. Most US federal and state labor laws do not apply to gig workers that require a minimum wage or overtime pay.
In November 2020, voters in California approved the labor measure known as Proposition 22 that allowed ride-sharing apps like Uber and Lyft to classify their drivers as independent contractors. It exempted these gig companies from providing certain benefits as employees, such as minimum wage, overtime, or workers compensation.
However, a group of drivers challenged the proposition saying it takes out employee rights and other benefits including sick days, leave and overtime pay. To this, the companies argued that it protects other benefits such as flexibility.
Following this, a California judge had ruled against the companies, arguing that the proposition infringed the legislature’s power to set standards at the workplace. The state of California and a group representing Uber, Lyft and other firms appealed against the decision.
In the latest ruling, a three-judge panel at the California appeals court overturned that ruling, noting that Proposition 22 was largely constitutional.
However, it removed a clause from Proposition 22 that put restrictions on collective bargaining by workers. The companies were also required to offer their workers some benefits, including healthcare and accident insurance.
In response to the latest verdict, Tony West, chief legal officer at Uber said, “Today’s ruling is a victory for app-based workers and millions of Californians who voted for Prop 22. We’re pleased that the court respected the will of the people and that Prop 22 will remain in place, preserving independence for drivers.”
Further, Lyft said that the proposition protects the independence drivers value and gives them new, historic benefits.
Meanwhile, the Service Employees International Union that had challenged Proposition 22 reportedly said it was considering appealing against the court’s decision.
In the after hours trading on Monday, Uder shares gained 4.80 percent, and Lyft shares gained 5 percent.
Today, in pre-market activity on the NYSE, Uber shares are trading at $32.25, up 4.64 percent, while Lyft shares are trading at $8.87 on Nasdaq, up 4.9 percent.
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