Uber, Postmates Sue California Over New Law Classifying Workers as Employees

Assembly Bill 5 was passed in California in September and is scheduled to go into effect on January 1, 2020.
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Uber (UBER) - Get Report and food delivery start-up Postmates are joining two contractors who work for the companies in filing a lawsuit against the state of California over a new gig economy labor law that the group says is unconstitutional.

California passed Assembly Bill 5 in September, dictating that gig-economy workers be reclassified as employees instead on contractors.

"Plaintiffs bring this lawsuit to protect their constitutional rights and defend their fundamental liberty to pursue their chosen work as independent service providers and technology companies in the on-demand economy," the lawsuit states. "AB 5 is an irrational and unconstitutional statute designed to target and stifle workers and companies in the on-demand economy."

The lawsuit represents the latest pushback from tech companies in the state who rely on contractors. Uber and fellow ride hailing company Lyft (LYFT) - Get Report are among a consortium that has pledged hundreds of millions of dollars for a California ballot initiative that would be an alternative to AB 5.

“We continue to focus on a path that we believe provides a very attractive option for drivers and couriers where they retain flexibility, but gain important new protections like healthcare subsidies and minimum earning standard," Uber CEO Dara Khosrowshahi said recently in a conference call with analyst.

"The on-demand economy is a free-market system in which Plaintiffs Lydia Olson and Miguel Perez, along with other independent service providers like them, have enjoyed opportunities to earn money when and where they want, with unprecedented independence and flexibility," the lawsuit states.

Uber shares were flat at $29.75 on Tuesday early afternoon; they are down more than 33% from their $45 IPO price in May.