The California agency that regulates Uber and Lyft said in an order Tuesday that ride-hail drivers are employees under AB5, the state’s new gig-work law, marking a significant development in the battle over drivers’ status.

Separately, in a recent letter to the ride-hailing companies, the agency said they must get workers’ compensation coverage for their drivers by July 1, the date set in AB5, or face consequences such as fines or even having the agency cancel, revoke or suspend their operations.