Shares in ride-hailing giants Uber Technologies and Lyft soared in premarket trading on Wednesday, after voters in California approved a ballot initiative that the two companies had thrown enormous resources into supporting. The initiative shields so-called gig-economy companies, including Lyft and Uber, from a new law that would have treated their drivers as employees eligible for a slew of benefits rather than as independent contractors.
Uber’s stock was up 12% to just over $40, while Lyft jumped 16% to hit $30 after California voters backed Prop 22, which had been underwritten by the two companies as well as Instacart, DoorDash, Postmates, and others to the tune of $200 million.
While Prop 22 would extend a few new perks to gig-economy workers, including a small stipend to help pay for health insurance, it does not include benefits such as paid sick leave, unemployment insurance, and other basic protections that workers receive under California labor laws. And that fact, investors believe, will protect these companies’ basic operating model in the country’s most populous state.
“In essence the underlying business models for Uber and Lyft were hanging in the balance if Prop 22 did not pass in California to keep the contractor model,” Wedbush analyst Daniel Ives wrote in a research note Wednesday morning.
According to Wedbush, Lyft gets about 16% of its revenue in California; for Uber, it’s 5% or so. But the greater fear for Wall Street was that other states and cities would give gig workers the protections Prop 22 aimed to thwart.
Prop 22 was submitted as an alternative to Assembly Bill 5, a bill that was signed into law and took effect in January, and made it harder for some companies to classify workers as independent contractors rather than employees.