TechnologyLast

Legal ruling could avert Uber, Lyft shutdown in California

A California court ruled Thursday that Uber and Lyft are not required to immediately reclassify their drivers as employees rather than independent contractors. The decision could allow the ride-hailing services to keep operating in the state after they had threatened to pull out.

Last week, a state judge ordered the companies to treat drivers as full employees, as required under a law passed in California last year. The transportation companies appealed the decision, arguing that the new law did not apply to them.

Prior to the ruling, Lyft had announced that it would halt service in California at 11:59 p.m. on Thursday. "This change would also necessitate an overhaul of the entire business model — it's not a switch that can be flipped overnight," the company said of the law, which took effect January 1.

Uber had also threatened to temporarily halt service in California if it were forced to comply with the law. "We can't go out and hire 50,000 people overnight," CEO Data Khosrowshahi said in a podcast earlier this week.

Pushing costs onto drivers

Both companies keep their labor costs down by categorizing drivers as contractors, who don't receive the same benefits and workplace protections as the companies' full-time employees. As independent contractors, Uber and Lyft drivers are responsible for their own expenses, including taxes, and don't get sick days, vacation time or compensation if they're injured on the job.

Classifying drivers as employees would shift many of those costs onto Uber and Lyft. It's a vastly more expensive arrangement for the companies, neither of which has turned a profit to date.

California officials say treating drivers as contractors also has broader costs because the companies don't contribute to the state's dwindling unemployment insurance fund on the drivers' behalf.

CBS News' Irina Ivanova contributed reporting.