Uber and Lyft drivers took another step closer to becoming regular employees rather than contractors in California.

Uber and Lyft suffered another setback in their fight against having to classify drivers as employees in California and are now the two companies are counting on a ballot initiative to block the full implementation of a new state law, which limits employers’ ability to designate certain employees as contractors.

Last week, a panel of appellate judges in California upheld the law, which says the ride-hailing companies must reclassify drivers as employees, making them eligible for benefits as well as another a full range of state and federal laws.

The two companies received a bit of a reprieve in August when a federal judge temporarily blocked implementation of the initial ruling until the appeals court render a decision on the appeal.

(Uber, Lyft get last-minute reprieve ahead of California shutdown.)

Uber and Lyft drivers claim they’ve been pressured to support the ballot initiative that would make them independent contractors.

The ruling basically affirmed an earlier court decision that designated the drivers as employees rather than contractors effectively undercutting Uber and Lyft’s business model. The contractor model, once legal under the law in California and virtually every other state, allows ride-hailing companies to shift significant costs to the drivers, according to independent analysts.

Uber and Lyft, having already lost in the California legislature and the state’s courts, are now working to promote a ballot initiative that would basically exempt them from the law.

The New York Times reports that the two companies are spending $200 million on to pass the initiative known has Proposition 22. The corporate electioneering on behalf of the measure has been criticized by some drivers who have complained they have been pressured to openly support the measure.

(Uber, Lyft suffer legal setback in case about driver status.)

In August, a California court ordered Uber and Lyft to reclassify their drivers in the state as employees, delivering a win to the state. At the time, both companies had threatened to shut down if they were forced to reclassify their workers.

California Attorney General Xavier Becerra said Lyft and Uber drivers are being expected to carry more responsibility than they should.

The ruling prompted the companies to appeal. But the appellate court wrote that the injunction restraining Uber and Lyft from classifying their drivers as independent contractors was valid. “It is broad in scope, no doubt, but so too is the scale of the alleged violations,” the court said.

California Attorney General Xavier Becerra said in a statement after the ruling, “Uber and Lyft have used their muscle and clout to resist treating their drivers as workers entitled to those paycheck and benefit protections. It’s time for Uber and Lyft to play by the rules.”

(Uber, Lyft hit by decision declaring drivers are employees.)

California law known as AB5 that was passed last September, companies would have to pass what has been dubbed the “ABC test” to justify classifying workers as independent contractors. The two ride-hailing giants insisted they met the guidelines, but in May Becerra filed for a preliminary injunction aimed at forcing them to comply.

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