On Monday, a judge ordered Uber and Lyft to convert their California drivers from independent contractors to employees with benefits, an early loss in a court battle that the informal economy cannot afford to lose.

The ruling will not be the last word, as public transportation companies are expected to appeal the far-reaching preliminary injunction that could force them to discontinue their services while they figure out how to adjust their business model to comply with it.

The case brought by California officials to enforce a state labor law that took effect this year is the gravest legal threat yet to the informal economy, and it comes at a particularly difficult time for the ride-sharing industry. Decimated by coronavirus-related travel restrictions, Uber widened its losses and reported a 67% decline in travel revenue during the June quarter.

The news erased some of the gains from Lyft shares on Monday, and Uber shares ended the day down nearly 2%. Lyft will report its results on Wednesday.

San Francisco Superior Court Judge Ethan Schulman paused the injunction for 10 days so companies can appeal their decision. Uber and Lift didn't immediately comment.

If Uber recategorizes its drivers as employees, ride prices would rise as much as 30% in San Francisco and up to 120% in the less populated Inland Empire, where demand is low, according to an analysis by Uber.