The State of California is suing ride-hailing companies Lyft Inc. (NASDAQ:LYFT) and Uber Technologies (NYSE:UBER) for alleged employee misclassification, which is a violation of the state’s new law.

California wants taxi-hailing drivers classified as employees

California Attorney General Xavier Becerra, alongside the city attorney of San Francisco, San Diego, and Los Angeles, filed the lawsuit on Tuesday. According to California’s new labor law, AB5, which took effect at the start of this year, the companies should not classify drivers as independent contractors because they contribute to the core operations of the company. They instead are supposed to be classified as employees of the company entitled to benefits.

The fresh suit filed at the County Superior Court in San Francisco alleges that the companies are depriving employees of protections that include paid sick leave, overtime, minimum wage as well as unemployment insurance. These are benefits that the drivers should be entitled to because they are essentially employees of the Taxi-hailing companies.

In a statement, Becerra indicated that the companies have continued to insist that their drivers are not involved in the core operations of the company; thus they don’t qualify for employment benefits. While referring to the current pandemic, the attorney alluded that sometimes it requires a pandemic to realize what this means and who are the most affected by the consequences.

Companies put together $100 ballot initiative to fight gig economy law

California accounts for a large share of the companies’ revenue sources. The petition is seeking compensation for Californian drivers and civil penalties that could amount to millions. The companies plus Doordash have put together a ballot initiative to fight the AB5 law, with each contributing around $30 million to the initiative. They have also received backing from Instacart and Postmates.

Interestingly if the ballot initiative is passed, then it will exempt the companies from the law. Uber has indicated that they will protest the suit in court but will continue pushing to enhance independent work standards for driers in the state with some benefits.