A California appeals court on Thursday dismissed a challenge to a ruling requiring Uber and Lyft to classify their drivers as employees under state law.
The decision allows an August order from San Francisco Superior Court Judge Ethan Schulman compelling the rideshare giants to comply with AB5 to take effect, although likely not for at least 30 days.
The landmark labor law establishes a test for determining whether workers can be classified as independent contractors rather than employees.
Uber and Lyft have resisted complying with the law since it took effect this January, arguing their core business is technology rather than ride-hailing.
As full employees, drivers would get basic worker protections like a minimum wage and the right to organize.
Both companies had threatened to stop operating in the state entirely if forced to comply with the law.
However, they will have one more chance to avoid reclassifying their drivers and ask for the decision to be reviewed by the California Supreme Court.
Uber and Lyft have poured tens of millions of dollars into Proposition 22, a ballot measure that would exempt gig companies from AB5.
“This ruling makes it more urgent than ever for voters to stand with drivers and vote yes on Prop. 22," Lyft spokesperson Julie Wood said in a statement.
"Today’s ruling means that if the voters don’t say Yes on Proposition 22, rideshare drivers will be prevented from continuing to work as independent contractors, putting hundreds of thousands of Californians out of work and likely shutting down ridesharing throughout much of the state," Uber spokesperson Davis White said.
Although the proposition would give some additional benefits to gig workers, it has been met with strong pushback from drivers. It would also require a seven-eighths majority to overturn, a caveat that has worried many observers.