Uber and Lyft slide after US proposes new gig work rules

Shares of the largest gig economy companies in the US plummeted after the Biden administration proposed a new rule that would make gig workers more likely to be classified as employees rather than independent contractors.

Ride-hailing app Uber fell as much as 16.7 percent, while shares in competitor Lyft and grocery delivery service DoorDash hit record lows while trading in New York on Tuesday, as investors feared the US Labor Department’s proposal would dramatically increase labor costs would.

The proposal would introduce a “test” that the Labor Department could use to determine whether workers are employees or independent contractors based on how much control they have over their working hours and job responsibilities. It lowers the bar on worker status from the rule written under former President Donald Trump’s administration.

Because these companies and some other companies classify their workers as contractors, they are not legally required to provide them with some work benefits to which workers are entitled, such as B. Minimum wage, overtime pay and contributions to unemployment insurance and social security. Adding those benefits would “turn the business model on its head,” Wedbush Securities analysts Daniel Ives and John Katsingris wrote in a research note.

Uber shares closed down 10.4 percent on Tuesday and Lyft down 12 percent. DoorDash gained some ground to close 6 percent lower.

According to a 2021 Pew Research Center report, about 9 percent of US adults had made money through an online gig platform in the past 12 months and could receive new work perks under the proposed rule. Cleaners, construction workers and general practitioners could also gain employee status.

However, according to RBC analyst Brad Erickson, the likelihood of the Biden administration forcing gig companies to reclassify their workers is “slim” as it could force ridesharing companies to lay off 3 million to 4 million part-time drivers and lower prices significantly increase services for their drivers.

Uber’s head of federal affairs, CR Wooters, said in a statement that the company’s drivers prefer the flexibility of the current rule and that the proposed rule “essentially takes us back to the Obama era, where our industry grew exponentially.”

Lyft said the proposal had “no immediate or direct impact” on its business because the drivers worked as contractors under a similar Obama-era rule. DoorDash believes its employees are already properly classified and does not expect the proposed rule to change their status as independent contractors.

Still, the proposal is “a clear blow to the gig economy and a short-term problem for companies like Uber and Lyft,” Ives and Katsingris wrote. “While this is a rule of interpretation for now, it will create some uncertainty for companies like Uber and Lyft [Wall] The street worries about the potential impact of waves [these] latest Beltway changes,” they added, referring to the federal government.

Drivers have long fought to be classified as employees in hopes of better pay and benefits. Being classified as an independent contractor makes it impossible to consistently earn a living wage, workers’ representatives say.

“While independent contractors play an important role in our economy, we have seen in many cases employers misclassify their employees as independent contractors,” Labor Secretary Marty Walsh said in a statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”

The Labor Department said it will give the public 45 days to comment on the proposal before proceeding with the rulemaking process.