Ride-hailing giants Uber and Lyft will continue their operations in California after a new appeals court ruling allows them to treat their drivers as independent contractors.

This decision pauses a lower-court ruling that was scheduled to take effect on Friday midnight. It would also give the two companies a few more months to protect their business models in a key market. 

"While we won't have to suspend operations tonight, we do need to continue fighting for independence plus benefits for drivers," Lyft spokeswoman Julie Wood said in a report.

The companies said the drivers' change in status would be impossible to accomplish overnight. They said it would also put a financial burden difficult for them to shoulder while they are still struggling to turn a profit. 

Lyft urged the people in California to support the measure called Proposition 22 that the companies are backing. This measure aims to classify drivers as independent contractors. 

Uber and Lyft with DoorDash, Postmates, and Instacart, have provided more than $110 million to support the measure. The proposition is up for a vote in California in November.

The appeals court is set to hear oral aruments regarding the case of the two companies on Oct. 13. But a ruling is unlikely until after the Nov. 3 election.

Drivers as Independent Contractors

Uber and Lyft classify their drivers as independent contractors, which means that workers pay for their own expenses, such as gas, car maintenance, and insurance.

By doing so, drivers are also not subjected to any labor benefits such as minimum wage, health care, and paid sick leave.If the drivers are classified as employees, these expenses will fall on the companies' shoulders.

Many drivers sought unemployment benefits as they were one of the many affected by the coronavirus pandemic. However, they found out that they did not qualify.

The companies have avoided giving their drivers state-mandated benefits such as unemployment aid by declaring them as independent contractors.

Judge Ethan Schulman of the San Francisco County Superior Court said the two companies had saved millions of dollars by classifying drivers as independent contractors.

The ride-hailing companies argued that they are technology companies, not transportation firms, which means that drivers are not a core part of their business.

A previous ruling was forcing the two companies to classify their drivers as employees. However, they said that if the court forced them to do that, they would have to stop their operations in the state.

"If the court doesn't reconsider, then in California, it's hard to believe we'll be able to switch our model to full-time employment quickly," Uber CEO Dara Khosrowshahi said in a report. 

Uber and Lyft in California

Uber and Lyft would be massively sustaining losses if they decided to shut down their operations in California.

Around nine percent of Uber's worldwide rides and food delivery services were accounted for California before the pandemic even began.

California is even more important for Lyft as it does not operate outside the United States, except in Canada.

Around 21 percent of Lyft's rides were accounted to Canada before the pandemic started. The figure then fell to 16 percent during the April to June period as more people were ordered to stay at home.

Uber said that the court's decision would ensure its "critical services won't be cut off while we continue to advocate for drivers' ability to work with the freedom they want."

Lyft, on the other hand, said that they would continue the fight for independence, adding benefits for drivers.

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