A California judged granted a preliminary injunction against Uber and Lyft which will require them to stop categorizing drivers as independent contractors. In response, Uber CEO Dara Khosrowshahi penned an op-ed in the New York Times calling for a change of the law which could benefit both parties more equally. Yahoo Finance’s The Final Round panel breaks down the details surrounding the events.

Video Transcript

MYLES UDLAND: I guess a rival-- a cousin, we'll call it a cousin of Airbnb, something in the same space. That's what's happening over at Uber and Lyft. Last night, a ruling in California, Akiko, that is certainly not what the company wanted because yesterday morning, Dara Khosrowshahi, he writes a big op ed in "The New York Times" saying we have a better solution for our employees. And California says we disagree. And they will have to be employees.

And I guess the question now is where do these companies go from here? Is the ruling last night really a total change for Uber and for Lyft and how they run their operations? And is California a harbinger of things to come for these businesses, thinking more nationally?

AKIKO FUJITA: Yeah, I mean, California has typically been a harbinger of things to come. So I think you want to take it in that sense.

But let's just look at what Dara Khosrowshahi has said because I think there's a little bit of both in this argument. On the one hand, you've got the argument that says these gig workers need to be treated as full-time employees. And then you've got Dara basically arguing that yes, these employees should get better benefits. Yes, we agree in trying to treat these employees better, but we've got a better solution.

And it's actually-- the argument here is that the laws on the books right now just don't address the in-between, which is the gig economy. And so you obviously want to take that with a certain bit of skepticism, given that Uber wants to be able to have and craft their own solution.

But there is a bit of an argument to that, I think, because the laws on the books and the way that employees are classified don't really address the gig economy as a whole. And when we talk about what the gig economy looks like, it's about number one, having a little more independence, having the flexibility. But also, now that it's such a big economy, a big scale, there's got to be the issue of benefits.

So it feels like there's going to be a compromise coming right in between here. But I'm not sure exactly what that compromise looks like.

DAN ROBERTS: And guys, let me just add, as Akiko said, the op ed from Dara kind of cuts both ways. And of course it does because it's a little bit of PR, isn't it? It's a little bit of an optics effort.

I saw a great retweet of someone retweeting "The New York Times" op ed headline, saying, "yes, I'm the CEO of foxes, and I say that hens deserve better rights." Kind of funny, but very apt.

I mean, what's really happening here, to me, is that the story about Uber and Lyft and whether these workers should be classified as full-time employees is returning to the fore after everyone sort of pushed it aside during the pandemic.

In many ways, I see it as similar to the path that we've seen happen with the antitrust concerns around big tech, right? I mean, that was a huge, huge story right before the pandemic is sure, all these FAANG names are surging. But are they too big? Are lawmakers going to go after them and make them sell off certain parts of their business?

But then the pandemic happened. And everyone forgot about that. And then the hearings happened two weeks ago. And so maybe now we're going to start talking about that again. And here we are again talking about the gig worker issue.

That said, I remember a time when people thought that being forced by lawmakers to classify these drivers as full-time employees and give them benefits would be a killer for Uber and Lyft and would kind of ruin these companies because they're barely profitable as it is. I mean, they're not profitable overall. But for Uber, as I wrote about today, actually, the rides part of the business has now been profitable five quarters in a row.

But that's not the case anymore. It doesn't seem to me to be the case, regardless of what happens next, that the gig worker issue is going to be a huge roadblock for the future of these companies. But we'll have to see just how influential California is for everyone else.

- Yeah, but at the same time, Dan, I think one of the things, just looking overall at Uber's results, at Lyft's result, is, what these companies have said about how reclassifying their workers would impact results.

So one of the things that Uber had said in an analysis it put out in May was that if the company does have to reclassify the drivers as employees, ride prices would have to increase as much as 30% in San Francisco and as much as 120% in California's less populated regions. And if we think about that, it's only going to bring demand lower, potentially put some of these drivers out of business. And that's one of the arguments that Uber, for its part at least, made.

Again, I think seeing how this dynamic plays out does remain to be seen. Of course, workers rights, gig economy, that dimension is a really important part of this. But I think watching it to see how this impacts Uber's margins and Lyft's margins especially, since that company is more consolidated just in the North American geographical segment, really heavily focused on California in particular. I think Lyft is probably even more exposed than Uber is to this issue.

MYLES UDLAND: Yeah, I would just add on the valuation point about, does this issue-- is this an overhang for the businesses? Well, right now, Uber is worth $50 billion, to $55 billion in public markets. Lyft's worth about 10. And those are significant haircuts to what the private market two years ago thought they were worth.

So in some sense, they've already had a massive haircut on this regulatory issue. And I think the problem here for investors is that any thesis which hinges on regulatory involvement one way or the other, whether you want to be short or long a stock, that's-- you could do that. You're free to invest on that basis. That's a very difficult position to take. And so I think it's certainly going to be maybe an overhang to the stock. But it's like the day that they have to actually flip the switch, then maybe the stock will react.

And I just note this because shares are not moving hugely today. I mean, Uber's down 3%. But this is a day when the NASDAQ right now is down almost a percent and half. And so we're not seeing a massive reactions to news that would seem like a quite material negative development for the company.