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Los Angeles – California is suing ride-hailing companies Uber and Lyft, alleging they misclassified their drivers as independent contractors under the state’s new labor law.

Attorney General Xavier Becerra announced the lawsuit Tuesday during a news conference. The labor law, known as AB5 and considered the nation’s strictest test, took effect Jan. 1 and makes it harder for companies to classify workers as independent contractors instead of employees who are entitled to minimum wage and benefits such as workers compensation.

Uber and Lyft could not immediately be reached for comment.

California represents Uber and Lyft’s largest source of revenue. The companies, as well as Doordash, are funding a ballot initiative campaign to exclude their drivers from the law while giving new benefits such as health care coverage. The initiative is likely to qualify for the November ballot.

A federal judge in February denied Uber and Postmates’ request for a preliminary injunction that would have exempted them from the law. But separately, a federal judge in January indefinitely blocked the law from applying to more than 70,000 independent truckers, deciding that it is preempted by federal rules on interstate commerce.

The state Legislature is also considering amending the law, though lawmakers are split whether to broaden or narrow it as other groups – such as freelance writers and photographers – contend they have been hurt by it through unintended consequences.

The state’s lawsuit alleges that Uber and Lyft haven’t paid enough payroll taxes as a result of the misclassification. The suit seeks restitution for unpaid wages owed to drivers, civil penalties and a permanent ruling that would prohibit the companies from misclassifying drivers in the future.

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