Uber (NYSE:UBER) shares dipped in today’s trading after the ride-hailing company lost a challenge in the 9th U.S. Circuit Court of Appeals, which ruled that drivers must be treated as employees rather than independent contractors. According to Reuters, the court upheld a lower court’s decision after Uber didn’t prove that the 2020 state law unfairly targeted app-based transportation companies while exempting others.
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The California Supreme Court applied the ABC test to determine worker classification, which requires that a worker is considered an employee unless they meet three criteria:
- Being free from the hiring entity’s control.
- Performing work outside the hiring entity’s usual business.
- Being engaged in an independently established trade.
Since ride-sharing services rely on drivers, the court ruled that drivers are employees under part “B” of the test. Although a later bill provided exemptions for some industries, ride-hailing was not included.
However, Uber said that it still considers its workers contractors due to a 2020 ballot initiative known as Proposition 22. Nevertheless, this is going through a separate court case, which may potentially be deemed unconstitutional. If that turns out to be the case, it’s likely to increase driver costs by 20% in California, as referenced in TipRanks’ Bulls Say, Bears Say tool pictured below:
Is Uber a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Strong Buy consensus rating on UBER stock based on 30 Buys, one Hold, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 65% rally in its share price over the past year, the average UBER price target of $87.79 per share implies 27.94% upside potential.
