Share prices of Uber, Lyft and DoorDash dropped heavily on Tuesday after the United States Department of Labor announced a proposal to change the way workers are classified, something that would drastically affect the company’s reliance on gig economy workers.
Uber’s share price dropped by more than 10%, Lyft’s was down more than 12% and DoorDash fell by more than 5% after the news broke.
The Department of Labor said in a statement that the prospective guidance is intended to “combat employee misclassification.” That could make it much easier for contracts to gain full employment status if they are deemed to be “economically dependent” on a company. Such a ruling could substantially increase the cost of business for food delivery and ride-hailing apps like Uber, Lyft and DoorDash.
The companies claim that the flexible schedules under the current rules are attractive to workers and point to the popularity of the model. They say this is only possible using the independent contractor status.
But labor activists disagree, claiming that companies are reducing their own costs while denying their workers benefits like health insurance, overtime pay, and the chance to organize into unions.
In 2020, California enacted a law requiring many companies to reclassify their contract workers as employees, but later the same year a proposition was passed that exempted ride-hailing and delivery companies from the law.
And that hasn’t been the only legal battle. Last year the Biden administration rescinded a rule created by Trump’s Labor Department that would have made it easier for companies like Uber and Lyft to classify workers as independent contractors. But a court reinstated the Trump-era rule after a legal challenge.
Lyft wrote in a blog post that there “is no immediate or direct impact on the Lyft business at this time,” claiming the rule “does not reclassify Lyft drivers as employees,” and does not change its business model.