Uber and Lyft shares rise despite legal setback on ‘gig workers’


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The shares of big gig economy groups bounced back on Monday after the likes of Uber expressed confidence they would prevail in overturning a California judge’s ruling that recently passed legislation backed by the industry was “unconstitutional”.

On Friday, a superior court judge in Alameda County, which neighbours San Francisco and encompasses the city of Oakland, said Proposition 22, which allows gig workers to remain so-called independent contractors, was “unenforceable” under state law. The judge said the ruling would not take effect while Uber and others, including California’s attorney-general, pursued an appeal.

Share prices of the big players like Uber and Lyft fell in the immediate aftermath of the decision. However, reassurances from the companies that the ruling would not have any immediate effect on drivers, and confidence that the decision would be overturned on appeal, appeared to assuage investors.

Uber and Lyft shares rebounded by the end of trading in New York, with Uber up 2.7 per cent and Lyft closing 2.9 per cent cent higher. Analysts reiterated “buy” ratings for Uber.

In a statement, Uber said the ruling “ignores the will of the overwhelming majority of California voters and defies both logic and the law”.

It added: “We will appeal and we expect to win. Meanwhile, Prop 22 remains in effect, including all of the protections and benefits it provides independent workers across the state.”

A spokesperson for food delivery app DoorDash said: “This ruling is not just wrong, but a direct attack on Dashers’ independence. It will not stand.”

Proposition 22 came into force in January after receiving backing from 59 per cent of California’s voters. It was the subject of intense campaigning by the gig economy industry, which collectively spent more than $220m on the effort — the most expensive campaign for a ballot measure in the state’s history.

It exempted gig economy companies from complying with a state law that demanded they give workers full employment rights. It instead offered a limited set of benefits, such as a stipend for healthcare. Proposition 22 was heralded by the industry as a model for regulation in other parts of the country. A similar ballot measure is currently being pushed in Massachusetts.

Brad Erickson, of RBC Capital Markets, wrote in a note: “We remain fairly certain that lawmakers in the state of California, and Washington DC for that matter, do not ultimately want to create laws that put people out of work while also adversely affecting the consumer; therefore we remain optimistic that such policies are unlikely to be enacted.”

Frank Roesch, Alameda County Superior Court judge, said provisions in Proposition 22 were “unconstitutional because it limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law”, drawing attention to a requirement that legislators reach a seven-eights majority in order to make any amendments.

As such, the judge wrote in Friday’s decision: “The Court finds that the entirety of Proposition 22 is unenforceable.”

The appeal is expected to take several months at least, during which time California drivers will continue to work under Prop 22’s rules.

“This is a national agenda that these companies have tried to run across the country,” said Alma Hernandez, executive director of the Service Employees International Union in California, which brought the case along with three drivers.

“The message here is clear. When you’re going to try to go to the ballot, to purchase your own laws and deny workers basic rights, there will be a fight.”

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