A big blow to Uber and Lyft. A California regulator ruled that the state will consider drivers working for ride-hailing services as employees, not contractors, under its new gig worker law.

The California Public Utilities Commission's decision comes six months after a state law made it tougher for companies to classify workers as contractors.

The new order strikes at the heart of the "gig economy" business model that relies on cheaper contract workers.

The companies have argued in the past that the majority of their drivers wouldn't want to be classified as employees because they cherish flexibility.

On Thursday, Lyft said in a statement, "CPUC's presumption is flawed. Forcing them (drivers) to be employees will have horrible economic consequences for California at the worst possible time."

Uber did not immediately respond to a request for comment.

The ruling comes just as the coronavirus has exposed gig workers’ lack of a safety net, with tens of thousands of them seeking sick leave and unemployment benefits.

News of the decision sent shares of Uber and Lyft sharply lower in early trading Thursday.