A driver uses the Uber app to drop a passenger in London.
Chris J. Ratcliffe | Bloomberg via Getty Images
Uber and Lyft shares traded lower in the premarket on Monday after a California court ruled that Prop 22, an election measure exempting gig workers from state labor laws, was unconstitutional.
Uber lost more than 3.2% in pre-trading while Lyft slumped nearly 3.4%.
Alameda County’s Supreme Court Justice Frank Roesch wrote in a ruling late Friday that Proposition 22 was unconstitutional because “it will limit the power of future legislation to define app-based drivers as workers subject to the Workers’ Compensation Act” . This makes the entire vote “unenforceable”.
California voters approved Proposition 22 with a majority vote in November. The election move effectively exempted several gig economy companies from the state’s recently enacted law, Assembly Bill 5, aimed at making their workers full-time.
Prop 22 proposed workers for app-based food delivery and ridesharing should remain contractors and be entitled to certain benefits and protection, such as minimum wages.
The move is a blow to gig economy companies including Lyft, Uber, Instacart, and DoorDash, which spent more than $ 200 million supporting the vote to keep their current business models going. Categorizing drivers as contractors enables companies to avoid costly benefits associated with employment such as unemployment insurance.
A coalition representing the companies announced that it would appeal. Firms have begun funding a move to put a similar vote in Massachusetts voters next year.
– CNBC’s Lauren Feiner contributed to this report.
Subscribe to CNBC on YouTube.