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Uber, Lyft face landmark trials that could change their business

Facing two separate lawsuits, the companies must convince juries that their drivers aren't employees -- and don't merit insurance and other benefits.

Uber drivers, along with their Lyft brethren, want to be classified as employees rather than contractors, entitling them to benefits. James Martin/CNET

Drivers for ride-hailing companies Uber and Lyft will get their day in court, two federal judges in San Francisco ruled Wednesday. The companies are both facing suits from drivers who want to be classified as employees, rather than independent contractors.

US District judges Vince Chhabria and Edward Chen each denied requests from the firms for summary judgment of the cases and said juries will decide how Uber and Lyft will classify and compensate drivers.

A change in worker classification from contractor to employee could dramatically increase the operating costs for both companies -- forcing them to handle taxes and Social Security, pay health insurance and other benefits, and reimburse expenses like gas and maintenance. As independent contractors, Uber and Lyft drivers currently handle those costs themselves.

Drivers for both companies are seeking class-action status in San Francisco Federal Court, and though the outcome of both lawsuits would affect only drivers in California, the results would set a precedent for other jurisdictions.

Uber and Lyft, which make apps that help people looking for a ride connect with drivers piloting their own vehicles, say people can make extra cash as drivers by being their own boss and driving as much or as little as they want.

"Lyft offers an empowering and flexible peer-to-peer model that provides economic opportunity for tens of thousands of driver community members throughout the United States," Lyft has said. And Uber has estimated that its drivers can make up to $90,000 a year.

But Uber's claim has been contested, with one source saying that the average yearly pay for a full-time Uber driver is $39,000. And some say the companies are taking advantage of workers.

"A lot of their success is built on the backs of the drivers," Shannon Liss-Riordan, the attorney representing the drivers in the Uber case, has said. "And a lot of the money that they are making stems from a scheme whereby the company is able to shift to its workers many of the costs of running a business."

Uber is the second highest valued venture backed company in the world with a valuation of $41 billion. Lyft, which announced a new funding round of $530 million on Wednesday, is valued at $2.5 billion.

Both Lyft and Uber declined to comment Wednesday about ongoing litigation.

"California's outmoded test for classifying workers will apply in cases like this," Chhabria said in his ruling, according to Reuters. "And because the test provides nothing remotely close to a clear answer, it will often be for juries to decide."

CNET's Dara Kerr contributed to this report.