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Uber, Lyft Are Exempt From Classifying Drivers As Employees After Proposition 22 Ballot Victory

Uber, Lyft Are Exempt From Classifying Drivers As Employees After Proposition 22 Ballot Victory

California has voted in favor of Proposition 22, a ballot measure that exempts ride-hailing companies like Uber Technologies Inc (NYSE: UBER) and LYFT Inc (NASDAQ: LYFT) from classifying drivers as employees, reports the Wall Street Journal.

What Happened: The California Assembly Bill 5 (AB5) went into effect from Jan. 1, 2020. and it required companies that hire independent contractors to reclassify them as employees. The law affects more than one million gig economy workers hired by companies like Uber, Lyft, and DoorDash.

Uber and Lyft had threatened to suspend their service in California if they were forced to reclassify the workers. The ride-hailing companies and its allies sponsored the proposition 22 ballot measure, asking the voters to exempt them from reclassifying the gig economy workers.

The campaign was the most expensive for any ballot in California's history, and it will set the tone for the rest of the country, as per WSJ. With more than 60% ballots counted and the vote running 58% in favor of the measure, the Associated Press projected it would pass.

Why It Matters: If aggregator companies were to reclassify workers as employees, it would have to pay benefits such as paid sick days and health insurance when they are already struggling to make a profit. 

The law affects other aggregator companies like Instacart and DoorDash.

To garner support for the ballot, the companies guaranteed other benefits such as health insurance for drivers who work 15 hours or more a week, occupational-accident insurance coverage, and 30 cents for every mile driven, among other protections -- WSJ.

Democratic nominee Joe Biden had opposed the measure in May and said that "gig economy giants are trying to gut the law," CNBC reports.

Price Action: UBER shares are higher by 12.4% to $40.20, and LYFT shares have gained 15% to $30.16 in the pre-market session on the last check Wednesday.


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