Uber, Lyft shares surge after court decision to treat drivers as contractors

(Reuters) — Shares of Uber Technologies and Lyft Inc. rose Tuesday after a California court ruled that drivers can be treated as independent contractors rather than employees, removing some future regulatory risks for the rideshare companies.

Analysts expect the decision will likely be challenged before the California Supreme Court, which could take months to decide whether to accept the case, and over a year to issue a ruling. For now, though, the ruling means companies like Lyft, DoorDash and Uber have avoided a substantial hit to their earnings.

Shares of Lyft, which on Monday hit a record low, were up 6%. Uber and DoorDash rose 7% and 6%, respectively.

A three-judge panel of the state appeals court on Monday reversed a lower court ruling in 2021 that the ballot measure Proposition 22 was unconstitutional.

Prop 22 was approved in November 2020 and exempted app-based drivers from a 2019 state law known as AB5 that makes it difficult to classify workers as independent contractors rather than employees.

If Prop22 is repealed, it will be replaced by AB5, which would require the companies to reclassify drivers as employees and provide full benefits and hourly pay rather than just trip time.

The latest ruling could also pave the way for other states to follow, analysts said.