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Uber shares rise on belief that California’s Proposition 22 will stand

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The shares of big gig economy groups bounced back on Monday after the likes of Uber expressed confidence they would prevail in overturning a California judge’s ruling that recently passed legislation backed by the industry was “unconstitutional”.

On Friday, a superior court judge in Alameda County, which neighbours San Francisco and encompasses the city of Oakland, said Proposition 22, which allows gig workers to remain so-called independent contractors, was “unenforceable” under state law. The judge said the ruling would not take effect while Uber and others, including California’s attorney-general, pursued an appeal.

Share prices in the big players like Uber and Lyft fell in the immediate aftermath of the decision. However, reassurances from the companies that the ruling would not have any immediate effect on drivers, and confidence that the decision would be overturned on appeal, appeared to assuage investors by Monday morning.

Uber, Lyft and DoorDash stock mostly flattened out by midday, with Uber recovering most strongly to trade up more than 2 per cent. Analysts reiterated “buy” ratings for Uber.

In a statement, Uber said the ruling “ignores the will of the overwhelming majority of California voters and defies both logic and the law”.

It added: “We will appeal and we expect to win. Meanwhile, Prop 22 remains in effect, including all of the protections and benefits it provides independent workers across the state.”

A spokesperson for food delivery app DoorDash said: “This ruling is not just wrong, but a direct attack on Dashers’ independence. It will not stand.”

Brad Erickson, of RBC Capital Markets, wrote in a note: “We remain fairly certain that lawmakers in the state of California, and Washington DC for that matter, do not ultimately want to create laws that put people out of work while also adversely affecting the consumer; therefore we remain optimistic that such policies are unlikely to be enacted.”

Proposition 22 came into force in January after receiving backing from 59 per cent of California’s voters. It was the subject of intense campaigning by the gig economy industry, which collectively spent more than $220m on the effort — the most expensive campaign for a ballot measure in the state’s history.

It exempted gig economy companies from complying with a state law that demanded they give workers full employment rights. It instead offered a limited set of benefits, such as a stipend for healthcare. Proposition 22 was heralded by the industry as a model for regulation in other parts of the country. A similar ballot measure is currently being pushed in Massachusetts.

Frank Roesch, Alameda County Superior Court judge, said provisions in Proposition 22 were “unconstitutional because it limits the power of a future legislature to define app-based drivers as workers subject to workers’ compensation law”, drawing attention to a requirement that legislators reach a seven-eights majority in order to make any amendments.

As such, the judge wrote: “The Court finds that the entirety of Proposition 22 is unenforceable.”

The case was brought by three drivers backed by the Service Employees International Union. “For two years, drivers have been saying that democracy cannot be bought. And today’s decision shows they were right,” said Bob Schoonover, president of the SEIU California State Council.


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