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Uber Technologies Inc. and Lyft Inc. face a lawsuit by California and three of its biggest cities for allegedly violating a new state law designed to give ride-share drivers and other gig-economy workers the benefits of employees.
While expected, the lawsuit that officials said is being filed Tuesday marks a serious threat to the business model of an array of companies that save on labor costs classifying workers as independent contractors. If the companies ultimately lose the suit, they could be forced to pay for overtime, health care and other benefits.
The complaint “asserts that Uber and Lyft gain an unfair and unlawful competitive advantage by inappropriately classifying massive numbers of California drivers as independent contractors,” California Attorney General Xavier Becerra said during a virtual press conference. The cities of Los Angeles, San Francisco and San Diego are joining the legal action.
Uber spokesman Matt Kallman didn’t immediately respond to an emailed request for comment. Lyft also didn’t immediately respond.
The companies in the past have said their drivers were properly classified as independent contractors, adding that the majority of them would not want to be considered employees, cherishing the flexibility of on-demand work.
Reuters contributed to this report.