Uber and Postmates were denied an injunction while they fight, in court, new rules that treat their contractors as full employees.
A federal judge on Monday rejected a request by Uber and the Postmates courier service to block a California labor law from taking effect, saying its public benefits outweigh the companies’ concerns.
Judge Dolly M. Gee of Federal District Court in Los Angeles said that the companies had proved they could suffer a degree of irreparable harm because of the law, which took effect Jan. 1, but that setting a living wage and regulating employment were more important to the public interest.
The 24-page decision is a blow to employers in the so-called gig economy. Uber and Postmates had sought an injunction against the law while their suit proceeds, saying the new rules will make it harder for them to classify their workers as independent contractors rather than employees.
Judge Gee did not rule on the merits of the case, and her decision does not stop the lawsuit, which was filed at the end of 2019 against the State of California.
Postmates said in a statement that it looked forward to pursuing the case on its merits. It added that it was considering all legal options, including an appeal.
Uber said it was reviewing Judge Gee’s opinion and considering whether to pursue an appeal. In a statement, the company called the California law “biased and overtly political” for granting preferential treatment to an arbitrary group of industries.
The lawsuit argues that the law violates the United States Constitution and unfairly singles out app-based technology platforms. Companies that violate the law face potential criminal penalties, but to date no enforcement action has taken place.
The bill strikes at the heart of the gig economy business model of technology platforms like Uber, Postmates, Lyft and others that rely heavily on the state’s 450,000 contract workers, not full-time employees, to drive passengers or deliver food via app-based services.
Investors are watching the California dispute closely, as companies subject to the law would be required to provide higher pay and other benefits, such as medical insurance — very likely upending the gig economy business model.
The app-based companies argue that the legislation compromises the flexibility prized by their work force and that fewer workers would be hired if they were considered employees.
Uber, Lyft and the food delivery company DoorDash have earmarked $90 million for a planned state ballot initiative in November that would exempt them from the law.