San Francisco  — A California appeals court on Thursday avoided a shutdown of ride-hailing services in the state by halting a lower court order that would have forced Uber Technologies and Lyft to treat their drivers as employees.

The companies had said they would be unable to comply with a new law that would consider their drivers employees entitled to benefits such as minimum wage, overtime and sick pay and unemployment insurance.

Thursday's last-minute ruling, in a case with potential ripple effects across the global gig economy, means drivers can continue working as independent contractors while the appeals courts consider the question of driver status.

But the court, which has scheduled arguments in the case for October 13, is not likely to rule before a November ballot measure puts the decision into the hands of California voters.

Lyft, Uber, DoorDash, Instacart and Postmates are spending more than $110m to support the ballot measure, known as proposition 22, that would enshrine drivers' contractor status, albeit with some added benefits, and overwrite the state's gig worker bill.

Lyft shares were up almost 9% after the last-minute ruling, and Uber shares were up 6.4%.

The threat to suspend service in the most populous US state marked an unprecedented escalation in a long-running fight between regulators, labour groups and gig economy companies that have upended traditional employment models around the world.

“We are glad that the Court of Appeals recognised the important questions raised in this case, and that access to these critical services won’t be cut off while we continue to advocate for drivers’ ability to work with the freedom they want,” Uber said in a statement.

Lyft did not immediately respond to a request for comment.

The office for California attorney-general Xavier Becerra, who had sued the companies for not complying with the state's gig worker law, did not immediately respond to a request for comment.

The companies had sought the intervention of the California  Court of Appeal in San Francisco to block an injunction order issued by a judge last week. That ruling forced the companies to treat their drivers as employees starting Thursday after midnight.

Uber and Lyft say the vast majority of their drivers do not want to be employees. The companies say their flexible on-demand business model is not compatible with traditional employment law and advocate for what they call a “third way” between employment and contractor status.


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