Shares of Uber, Lyft and Doordash tanked on Monday after a California judge struck down a law allowing the companies to classify their workers as contractors rather than employees.
The law — which was passed through a 2020 ballot measure called Proposition 22 after $225 million in spending by Uber, Lyft and other gig companies — was ruled unconstitutional by an Alameda county Superior Court judge late Friday.
When markets opened Monday, Uber shares were down 2.3 percent at $39.05 and Lyft shares had fallen 3.1 percent to $44.48, according to MarketWatch data. Shares of food delivery app Doordash, meanwhile, had tanked 4.2 percent to $176.25.
Uber has vowed to appeal the decision to California’s Supreme Court. Lyft referred a request for comment to the Protect App-Based Drivers & Services Coalition.
“We believe the judge made a serious error by ignoring a century’s worth of case law requiring the courts to guard the voters’ right of initiative,” Geoff Vetter, a spokesman for the group, which has backing from Lyft, Uber, Doordash and Instacart. “This outrageous decision is an affront to the overwhelming majority of California voters who passed Prop 22.”
Vetter said the ride-sharing companies will file an immediate appeal, noting that the judge’s order isn’t binding and will be immediately stayed upon appeal. Proposition 22 will remain in effect until the appeal process is complete.
Proposition 22 blocks people who work for gig apps from receiving full employment status, reducing companies’ labor costs and blocking workers’ access to sick pay, healthcare and minimum wage, drawing ire from labor activists. Uber, Lyft and other gig companies have argued that the arrangement offers workers more flexibility.
California Superior Court Judge Frank Roesch’s ruling on Friday was made in favor of three drivers and the Service Employees International Union, who claimed in a January lawsuit that the law blocked the state legislature’s ability to grant employees the right to access the state workers’ compensation program.
Roesch also ruled that a provision in Proposition 22 requiring a seven-eighths majority in the state legislature for the law to be overturned was unconstitutional.
Uber, Lyft, Doordash and other perpetually unprofitable gig companies that supported Proposition 22 are in for a lengthy and consequential legal battle, observers say.
University of California Hastings law professor Veena Dubal told Bloomberg that the lack of similar cases in the court record means the outcome of an appeal is hard to predict.
“There’s not a lot of case law here to draw on,” she said, calling Friday’s ruling an “important first decision in what will end up being a very consequential legal battle.”
Bob Schoonover, president of the SEIU California State Council, praised Friday’s decision.
“For two years, drivers have been saying that democracy cannot be bought. And today’s decision shows they were right,” he said.
“This is another head scratcher on Prop 22 that brings back this nightmare situation back into the mix for Uber and Lyft,” said Wedbush Securities analyst Dan Ives. “While likely it stays just a legal overhang there is a chance this becomes a scenario that changes the game for these Gig companies in California.”