Uber and Lyft drivers are now employees under California law, according to a new ruling from regulators

• California's Public Utilities Commission said in an order Tuesday that Uber and Lyft drivers are "presumed to be employees" under AB-5, the state's new gig work law.
• The agency, which oversees ride-hailing companies, said they must now comply with existing regulations related to employees.
• The ruling is a significant defeat for Uber and Lyft, which had argued publicly and in lawsuits that their drivers were properly classified as independent contractors.
• Uber, Lyft, and other similar services have come under fire for their treatment of contractors, who don't receive benefits like healthcare and paid time off that are offered to the companies' full-time employees.

The California Public Utilities Commission said in an order Tuesday that drivers for Transportation Network Companies (TNCs), which include services like Uber and Lyft, are considered employees under AB-5, the state's hotly debated new gig work law.

"For now, TNC drivers are presumed to be employees and the Commission must ensure that TNCs comply with those requirements that are applicable to the employees of an entity subject to the Commission's jurisdiction," wrote commissioner Genevieve Shiroma.

The ruling from CPUC, the agency in charge of regulating ride-hail companies, marks a significant development in the battle over the employment status of tens of thousands of gig workers in California.

Both companies criticized the ruling, saying it could hurt drivers' wages and pointing to a ballot measure they support that would revoke the law.

"CPUC's presumption is flawed; drivers are correctly classified as independent contractors and overwhelmingly want to remain independent contractors," a Lyft spokesperson told Business Insider. "Forcing them to be employees will have horrible economic consequences for California at the worst possible time."

"Uber remains committed to expanded benefits and protections to drivers," a company spokesperson told Business Insider. "If California regulators force rideshare companies to change their business model it could potentially risk our ability to provide reliable and affordable services along with threatening access to this essential work Californians depend on."

Ride-hailing companies like Uber and Lyft have been at the center of AB-5, which went into effect this year and made it more difficult for companies to classify employees as independent contractors.

Unlike their full-time counterparts, contractors don't receive benefits like healthcare and paid leave, and Uber and Lyft haven't been required to abide by certain labor regulations, such as minimum wage, or pay payroll taxes for those workers, which feed into programs like unemployment insurance.

That has prompted intense criticism from drivers, activists, and lawmakers who say ride-hail giants — as well as food delivery services, freelance platforms, and others that rely on gig workers — unfairly profit by taking advantage of contractors, and eventually led lawmakers in California to pass AB-5 in an effort to force the companies to reclassify them as employees.

While many drivers and labor groups have praised AB-5, it has also received intense pushback from some corners. Beauticians, truckers, freelance writers and workers in industries long dominated by contractors have said the law is too far-reaching, for example.

AB-5's most ardent opponents, however, have been its intended targets: gig work companies.

Last year, Uber sued California, seeking an exemption from AB-5, and along with Lyft and various food delivery apps, has publicly argued that its drivers should not be classified as employees, called on taxpayers to foot the bill for drivers' unemployment insurance, and poured millions into a ballot measure aimed at revoking the law.

Uber and Lyft have so far refused to reclassify drivers under AB-5, leading city attorneys general from Los Angeles, San Francisco, and San Diego to sue the companies to force them to comply with the law. More than 4,000 drivers across the state have also taken action by filing $1 billion worth of back wage claims, driver group Rideshare Drivers United said in a statement.

The COVID-19 pandemic has brought new scrutiny to the labor practices of gig work companies like Uber and Lyft, with drivers facing a steep drop in income, struggling without healthcare or paid time off, and unable to claim unemployment insurance.