California's attorney general, Xavier Becerra, and its biggest cities sued Uber Technologies UBER and Lyft LYFT, charging the ride-sharing companies misclassified their drivers as contractors rather than employees.
San Francisco, San Diego and Los Angeles joined the suit, which claims the companies deprive workers of such protections as the right to minimum wage and overtime, and access to paid sick leave, disability insurance, and unemployment insurance.
The economic shutdown caused by the coronavirus pandemic has decreased ridership for the two companies, leaving drivers without a source of income.
"Sometimes it takes a pandemic to shake us into realizing what that really means and who suffers the consequences," Becerra said in a statement. "Uber and Lyft drivers who contract the coronavirus or lose their job quickly realize what they're missing."
The lawsuit, filed in Superior Court of San Francisco, seeks restitution for workers, a permanent halt to the misclassification of drivers, and civil penalties that could reach hundreds of millions of dollars.
Uber and Lyft did not immediately respond to a request for comment.
But in a statement to CNBC, Uber said, "we will contest this action in court, while at the same time pushing to raise the standard of independent work drivers in California, including with guaranteed minimum earnings and new benefits.”
Lyft told CNBC that “we are looking forward to working with the attorney general and mayors across the state to bring all the benefits of California’s innovation economy to as many workers as possible, especially during this time when the creation of good jobs with access to affordable healthcare and other benefits is more important than ever.”
Separately, the Information reported that Uber Chief Executive Dara Khosrowshahi told staff on Tuesday to expect a decision about layoffs in the next two weeks as the ride-hailing company struggles with depleted demand for its core business due to the coronavirus outbreak.
“Hope is not a strategy,” Khosrowshahi said. “We’re not going to avoid hard decisions.”
A company spokeswoman said Uber would not comment about layoffs.
Uber said on Monday it would soon require drivers and riders to wear masks or other face coverings in some countries, including the U.S.
Uber shares at last check were up 2% to $27.98, while Lyft was down 1.2% to $26.70.