Late on Friday, a California state judge unexpectedly ruled the November ballot measure that Uber, Lyft, Instacart, and DoorDash classify drivers as independent contractors is unenforceable and unconstitutional, according to Bloomberg. Fast forward to Monday, when ridesharing companies stumbled premarket on this news, with news that Uber had registered some 25.3 million shares for sale only adding to longs' pain.
Ridesharing companies have spent more than $200 million on Proposition 22 last November that exempts gig economy workers from state labor laws requiring them to provide workers with benefits. But all that may have been for nothing after Alameda County Superior Court Judge Frank Roesch issued the ruling on Friday and determined that Proposition 22's provisions covering worker's compensation law and collective bargaining in future gig work violate the state's constitution.
"If the people wish to use their initiative power to restrict or qualify a 'plenary' and 'unlimited' power granted to the legislature, they must first do so by initiative constitutional amendment, not by initiative statute," Roesch said in the ruling.
Uber spokesperson Noah Edwardsen responded that "this ruling ignores the will of the overwhelming majority of California voters and defies both logic and the law. Meanwhile, Prop 22 remains in effect, including all of the protections and benefits it provides independent workers across the state," Edwardsen said.
University of California Hastings law professor Veena Dubal said the ruling is an "important first decision in what will end up being a very consequential legal battle."
The news has sent Uber, Lyft, DoorDash tumbling in the premarket. Uber, which was down 5.2%, was also hit by news that the company has registered 25.3 million shares for a future stock sale to stockholders in connection with the Aug. 10 acquisition of Cornershop Global. Lyft shares are down more than 4%, and DoorDash is down more than half a percent.
A daily timeframe points to underperformance for ridesharing companies this year.
Some ridesharing companies have threatened to leave states that require gig-workers to be classified as employees.