By Jonathan Stempel
(Reuters) - California and three of its largest cities urged a state judge on Thursday to issue a preliminary injunction requiring Uber Technologies Inc (N:UBER) and Lyft Inc (O:LYFT) to classify their drivers as employees rather than as contractors.
The argument was made at a hearing in San Francisco Superior Court in a May 5 lawsuit accusing Uber and Lyft of violating a new state law requiring companies to treat workers as employees if they control how the workers do their jobs, or the work is part of companies' normal business.
Several hundred thousand "gig" workers, including many at ride-hailing companies and app-based food delivery services, are affected by the law known as Assembly Bill 5 ("AB5"), which took effect on Jan. 1 with broad support from organized labor.
California Attorney General Xavier Becerra and the cities of Los Angeles, San Diego and San Francisco have said classifying drivers as contractors deprives them of essential benefits such as a minimum wage, overtime, sick leave, unemployment insurance and workers' compensation insurance.
They have also said it gives Uber and Lyft, which are not profitable, an unfair competitive advantage. California's labor commissioner threatened on Wednesday to file similar lawsuits.
Superior Court Judge Ethan Schulman asked whether Uber and Lyft were correct that the plaintiffs wanted a "radical" restructuring of their businesses, perhaps entailing job losses.
"You don't need to be worried," responded Matthew Goldberg, a lawyer for San Francisco, saying the companies had "dramatically overstated" the potential fallout.
The companies have said most drivers would oppose being treated as employees, and Uber has said more than 150,000 drivers in California alone would lose work if it happened.
But Goldberg said such a classification would help ensure that drivers receive benefits not available under federal law.
"The full range of California safety net protections are what we think drivers are entitled to here," he said.
Lawyers for Uber and Lyft are expected to argue against an injunction.
California is the biggest U.S. market for Uber and Lyft.