Shares of Uber Technologies Inc. and Lyft Inc. rose sharply this morning after California voters passed Proposition 22, a ballot measure exempting the companies from having to classify drivers as employees.

The Associated Press projected earlier today that the measure passed with 58% of the votes. 

Uber and Lyft classify drivers who operate on their services as independent contractors rather than employees. Last year, California passed a piece of legislation called AB5 requiring the companies to reclassify drivers as employees and provide employment benefits such as overtime pay, paid sick leave and family leave. Proposition 22 overrides AB5, meaning Uber and Lyft can continue treating drivers as independent contractors.

The ballot victory is a major win for the two ride-hailing giants. Uber and Lyft are currently working to achieve profitability after years of losses, an effort that would have become more difficult had they been required to assume the additional cost of employee benefits. The companies warned earlier this year that they would have to suspend their services in California if they were forced to reclassify drivers as employees.

Besides enabling Uber and Lyft to continue providing ride-hailing services in their home state, Proposition 22 will reportedly carry another benefit for the companies. The New York Times reported that ballot measure will limit the scope of a lawsuit filed against the companies by California’s state attorney general for failing to comply with AB5. Now that AB5 has been overridden, the lawsuit will only seek penalties for the time between the passing of the legislation and the passing of Proposition 22 during which Uber and Lyft didn’t classify drivers as employees. 

The ballot victory is also a win for a number of other tech firms besides Uber and Lyft because AB5 applied to the so-called gig economy segment as a whole. That’s why food delivery giant DoorDash Inc. supported Proposition 22 alongside the ride-hailing giants. Together, the three companies spent about $200 million in support of the measure.

Proposition 22 does require Uber and Lyft to expand the benefits they provide to drivers but to a more limited extent than AB5. The companies, along with other gig economy players, will have to provide a wage floor as well as certain other compensation, including expense reimbursement policies. 

“The future of independent work is more secure because so many drivers like you spoke up,” Uber Chief Executive Dara Khosrowshahi wrote to drivers in an email obtained by The Times. Uber, he continued, would implement the expanded benefits stipulated by Proposition 22 “as soon as possible.”

DoorDash CEO Tony Xu said in a separate statement that “now, we’re looking ahead and across the country, ready to champion new benefits structures that are portable, proportional and flexible.” 

Uber’s shares surged over 12% this morning while Lyft is up more than 8%. Today’s news follows a recent win for Uber in another major ride-hailing market: London. The company successfully appealed a ban on its service by the city’s transport authority in September and won an 18-month license to operate in the British capital. 

Photo: Unsplash