The state has argued that by classifying their drivers as contractors, Uber and Lyft deprive those workers of benefits they are entitled to under a law that took effect January 1. The law, known as Assembly Bill 5, or AB-5, says companies can only treat their workers as independent contractors if those people are free from company control and perform work outside the company's core business.
A reclassification of their workers would represent a radical shift forced on the two businesses, which have built up massive fleets of drivers by treating them as independent contractors and not providing them benefits that they would be entitled to as employees, such as minimum wage, overtime, paid sick leave and unemployment insurance.
The ruling prompted the companies to appeal. But Associate Justice Jon Streeter of the appellate court wrote in his decision Thursday that the injunction restraining Uber and Lyft from classifying their drivers as independent contractors was valid.
"It is broad in scope, no doubt, but so too is the scale of the alleged violations," he wrote.
"Uber and Lyft have used their muscle and clout to resist treating their drivers as workers entitled to those paycheck and benefit protections," Attorney General Xavier Becerra said in a statement after the ruling. "It's time for Uber and Lyft to play by the rules."
"This ruling makes it more urgent than ever for voters to stand with drivers and vote yes on Prop. 22," Lyft spokesperson Julie Wood said in a statement to CNN Business on Thursday.
Uber did not immediately respond to request for comment.
Last month, the CEOs of both companies told the California appeals court that they planned to comply with the law if the lower court's injunction was upheld, and if Prop. 22 fails.
Lyft CEO Logan Green wrote that "such implementation may include ceasing rideshare operations in all or some parts of California."