Oct. 23 (UPI) -- After months of legal dispute, a California appellate court has ruled that ride-share operators Uber and Lyft must consider their drivers employees -- a prospect that has both companies threatening to leave the state.
The ruling Thursday came five months after California first demanded the companies reclassify their drivers as employees, saying they're violating a new state law that took effect this year that says companies can only consider workers independent contractors if they're entirely free from company control and perform work outside the company's core business.
Classifying drivers as employees would force both Lyft and Uber to provide benefits like a minimum wage, overtime pay, sick leave and unemployment insurance.
"Uber and Lyft have used their muscle and clout to resist treating their drivers as workers entitled to those paycheck and benefit protections," California Attorney General Xavier Becerra said in a statement.
"The courts saw right through their arguments. Today's decision comes on the same day that the federal government reports that more than one million Americans filed for unemployment benefits -- and 3 of every 10 of them are gig workers or self-employed."
A San Francisco court also ruled in August the companies must reclassify their drivers as employees.
Both ride-share companies have said they would leave the state if they're forced to reclassify drivers. Uber CEO Dara Khosrowshahi said making such a dramatic and costly change would "cripple" the company's business model.
"Our analysis found that 158,000 work opportunities would be eliminated in California alone, leaving 76% of California drivers without the ability to earn on Uber," Khosrowshahi said earlier this month.
Lyft and Uber will have 30 days to comply with the state law after the appeals process ends. It's possible, however, that both could ultimately ignore Thursday's ruling.
The companies, along with other similar services like DoorDash and Instacart, are promoting a ballot initiative next month that would exempt them from the state law.
California voters will decide the initiative, Proposition 22, on the ballot in the Nov. 3 election.
Uber said if the proposition fails, it could effectively shut down all ride-sharing in California and put hundreds of thousands of people out of work.