Uber, Lyft Sued Over Allegedly Misclassifying Drivers as Contractors

Uber Technologies Inc. (UBER) and Lyft Inc. (LYFT) are being sued by California and three other cities over allegedly misclassifying drivers as independent contractors instead of employees, thereby violating workers’ rights and benefits.

The lawsuit filed Tuesday in San Francisco claims that since Uber and Lyft started operating ride-hailing services in 2010 and 2012 respectively they improperly classified their drivers as independent contractors rather than employees and thereby “exploited hundreds of thousands of California workers”.

The two ride-hailing companies evade workplace standards and protections and withhold health and compensation benefits violating a California law which came into effect on Jan. 1, according to the filed lawsuit. The complaint was also joined by the cities of Los Angeles, San Francisco, and San Diego.

“Uber and Lyft evade the workplace requirements that implement California’s strong public policy in favor of protecting workers,” it was stated. “The time has come for Uber’s and Lyft’s massive, unlawful employee misclassification schemes to end.”

The action seeks to ensure that ride-hailing drivers receive the full compensation, protections, and benefits they are guaranteed under law. If successful, Uber and Lyft could be made liable to pay back drivers for overtime, health care and other benefits.

Uber and Lyft “utilize the illegitimate savings they gain from depriving their drivers of the full compensation and benefits they earn as employees to offer their ride-hailing services at an artificially low cost, decimating competitors and generating billions of dollars in private investor wealth off the backs of vulnerable drivers,” it was argued in the suit.

In response to the complaint, Uber said it intends to contest the action in court, while announcing that it will raise standards for drivers in California, including minimum wages and new benefits.

“At a time when California’s economy is in crisis with four million people out of work, we need to make it easier, not harder, for people to quickly start earning,” Uber said in a statement.

Lyft said that it will cooperate with the Attorney General and mayors 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.”

Wall Street analysts have a bullish outlook on both Uber and Lyft stocks. Uber’s Strong Buy consensus rating is based on 26 Buys, 2 Holds and 1 Sell. The $41.64 average price target projects shares will surge 48% in the next 12 months. (See Uber’s stock analysis on TipRanks).

Twenty-two of 29 analysts have a Buy rating on Lyft’s shares and the remainder have a Hold rating. The $50.17 average price target implies a whopping 88% upside potential for the shares in the coming 12 months. (See Lyft stock analysis on TipRanks).

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