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Uber, Lyft gain on hope of relief from California law

New York

SHARES of ride-hailing companies Uber Technologies Inc and Lyft Inc gained amid news that California's governor was still open to negotiating with the firms regarding possible exemptions from new legislation that could force the gig economy giants to reclassify their workers as employees.

The Wall Street Journal reported earlier on Wednesday that California governor Gavin Newsom remained personally involved in talks with Uber, Lyft and other gig economy companies. Mr Newsom told the Journal that he was "committed, at least, to continuing those negotiations" in an interview on Tuesday.

Under the new law, called Assembly Bill 5 and passed by the California Senate, people in California could generally only be considered contractors if the work they're doing is outside the usual course of a company's business. Complying with the new rules would mean companies like Uber and Lyft would have to consider their drivers employees, entitled to a minimum wage and overtime pay - neither of which is a common protection within the gig economy.

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While the passage of the Bill is a "clear financial negative", Wedbush analyst Daniel Ives said he expected that ultimately a more middle-ground approach will be settled on as the companies will reduce hiring and the flexibility of its workforce in California, "offsetting the positive protection measures drivers will get". "If per driver costs in California go up by about 30 per cent, but Uber/Lyft impose shifts, and raise the hurdle to onboard a driver (thereby limiting training and other costs), it should limit the overall impact," Mr Ives wrote in a note to clients.

Uber shares gained as much as 4.9 per cent, and Lyft jumped as much as 8.1 per cent. GrubHub Inc stocks also rose 2.6 per cent on Wednesday.

In a note to clients last week, Deutsche Bank analyst Lloyd Walmsley noted that the shares of ride-hailing companies have recently taken a hit due to concerns around the California regulations, and called it an "over-reaction." BLOOMBERG