California court says Uber, Lyft drivers are employees, not contractors

A California appeals court on Thursday upheld a state order requiring Uber and Lyft to treat their California drivers as employees instead of independent contractors. The ruling comes less than two weeks before California voters will be asked to exempt the ride-hailing giants from the state's ground-breaking gig economy law.

The decision won't have any immediate impact because it doesn't take effect for at least 30 days, well after the November 3 vote on Proposition 22.

Uber and Lyft had appealed an August preliminary injunction by a San Francisco judge. But the appellate ruling found "no legal error" and allowed it to stand.

"We conclude that the injunction was properly issued in accordance with enduring principles of equity," the 74-page ruling said. "It is broad in scope, no doubt, but so too is the scale of the alleged violations."

Uber and Lyft issued statements noting that the ruling doesn't take immediate affect and urging voters to approve Prop. 22. Lyft also said it is considering appealing to the California Supreme Court.

California Attorney General Xavier Becerra and the city attorneys of Los Angeles, San Diego and San Francisco had sued Uber under a new California law that says companies can only classify workers as contractors if they perform work "outside the usual course" of their business. Becerra praised the court's decision.

"Californians have fought long and hard for paycheck and benefit protections. Uber and Lyft have used their muscle and clout to resist treating their drivers as workers entitled to those paycheck and benefit protections," Becerra said in a statement. "The courts saw right through their arguments. In the midst of a COVID health and economic crisis, what worker can afford to be denied basic protections like paid sick leave, unemployment insurance, minimum wage, or overtime?"

The focus of the fight now moves to the ballot. Proposition 22, a ballot initiative to which Uber, Lyft and DoorDash have contributed nearly $190 million, proposes to create a new category of work for people being paid through gig platforms.

The transportation companies have aggressively lobbied drivers and passengers alike to vote in favor of the measure. They have run TV ads, sent out postal mailers and put messaging in favor of Proposition 22 in their apps, which both California riders and drivers must click through in order to use the app.

On Thursday, a group of drivers sued the companies, accusing them of "wrongfully pressuring" its drivers to support the measure, in violation of California law.

Treating Uber and Lyft drivers as employees instead of independent contractors would guarantee benefits such as overtime, sick leave and expense reimbursement for workers who make up much of the freewheeling gig economy.

California's worker-classification law has wide-reaching implications across a number of sectors, but none more so than the ride-hailing industry. Lawyers for Uber and Lyft say drivers are not fundamental to the business, arguing the companies are "multi-sided platforms" whose activities encompass much more than transportation.

The ride-hailing companies previously threatened to stop operating in California if they were required to treat drivers as employees with greater rights than contract workers have.

CBS News' Irina Ivanova contributed reporting.