It wasn't a grey area. The definition of who is an independent contractor vs an employee is pretty clear in US and especially California law. The only grey area is Uber just saying that all of their workers should be considered independent contractors because everything was through an app. Courts didn't buy the "it's OK because of an app" argument, so Uber and Lyft bankrolled a citizen initiative in California to amend the constitution (Prop 22) to declare that workers for app-based ride-sharing and delivery platforms are independent contractors and not employees.

So for years, they operated illegally, gaining market share subsidized by VC funds and wage theft of driver's benefits, then changed the law to legalize what they had been doing from the start.