Yahoo Finance Uber, Lyft Shares Fall on Possible Changes to How Gig Workers Are Classified
(Bloomberg) -- Uber Technologies Inc. and Lyft Inc. tumbled after the Biden administration issued a proposal that could change the way it approaches workers’ employment status, a move that could upend the ride-hailing companies’ business models that rely on millions of gig workers.
Most Read from Bloomberg
Forecast for US Recession Within Year Hits 100% in Blow to Biden
Blinken Says China Wants to Seize Taiwan on ‘Much Faster Timeline’
Putin’s War Escalation Is Hastening Demographic Crash for Russia
S&P 500 Bounces Off Make-Or-Break Technical Level: Markets Wrap
The Time to Buy the Dip Is Fast Approaching — for One Country
The proposal, released Tuesday by the US Labor Department, aims to clarify when restaurant workers, delivery couriers, ride-hailing drivers and other gig workers should be classified as employees, or independent contractors in business for themselves. Categorization as an employee would require that businesses provide benefits and protections such as a minimum wage, paid overtime and contributions to unemployment insurance, which companies say would lead to prohibitive operational costs and reduce the amount of flexibility workers have over their jobs.
The Biden administration’s proposal lays out a new assessment for workers’ status that will consider multiple factors, including how “economically dependent” a person is on a company, the opportunity for profit or loss, and whether the work is integral to the employer’s business, among other criteria, to determine whether the person is truly in business for themselves. The highly anticipated proposal differs from the current rule, which was created under the Trump administration and gave greater weight to how much control workers have over their duties and their opportunities for earnings.
The Department of Labor said in a statement the new proposal will “help protect workers from misclassification.” The acting head of the DOL’s Wage and Hour Division, Jessica Looman, said the rulemaking wasn’t likely to result in large worker classification changes.
The proposal could take several months to finalize and effectively reverts back to the guidelines adopted by the Obama administration, which relied on a broader definition to assess employee status. There will be a 45-day public comment period on the proposal once it’s published on Thursday. After it goes into effect, the rule wouldn’t mandate companies to reclassify workers outright, but would be the new interpretation for how the Fair Labor Standards Act should be applied.
Read more about the Biden administration’s attempts to expand gig worker protections under a new rule
Uber, Lyft and construction, trucking, and other industries that use independent contractors to staff their fleets were watching closely for the rule. The shares of most such companies fell. Uber declined 10%, Lyft gave up 12% and DoorDash Inc. dropped 6% at the close in New York. But the companies largely shrugged off the news and investors and legal experts said it’s not likely to change much in how they operate.
The proposal Tuesday “is hardly controversial,” said Richard Reibstein, co-head of Locke Lord’s independent contractor compliance and misclassification practice, who represents employers. He wrote in a blog post that the proposal “does little more” than formally rescind a business-friendly test outlined by the Trump administration and restore an approach that considers the totality of circumstances.
Gig economy giants like Uber, Lyft, DoorDash and Instacart Inc., connect millions of independent workers with jobs. The companies’ argue that classifying drivers and couriers that way allows workers to control how long and when they work, a degree of flexibility they claim people want. However, labor advocates say the current system has left gig workers vulnerable and they should also be entitled to the wage and legal protections enjoyed by employees. Advocates like Gig Worker Rising applauded the long-awaited proposal, but others said it didn’t go as far as was expected from a pro-worker administration.
Uber, in fact seemed to applaud the proposal. It said in a statement, “the Department of Labor listened to drivers, who consistently and overwhelmingly state that they prefer the unique flexibility that comes with being an independent contractor.” The new proposal “takes a measured approach essentially returning us to the Obama era, during which our industry grew exponentially,” the company said.
“There is no immediate or direct impact on the Lyft business at this time,” the San Francisco-based company said in a blog post published after the Labor Department’s announcement, adding that “Lyft will continue to advocate for laws like the one in Washington state which gives workers what they want: independence plus benefits and protections.”
Companies had anticipated the Biden administration would reinstate the Obama-era guidance on classification and the proposal didn’t come as a surprise, according to Tom White, an analyst at DA Davidson & Co. “It has no immediate changes to anything related to how companies operate their business,” White said. “It’s a proposal that in some ways can be viewed more like a conversation starter.” He added that it “creates sort of a framework that governs the overall discussion between the gig companies and the states.”
Still, the stock decline reflected lingering investor concerns of what a gig-worker friendly administration could do. “The fear is that there’s still a risk that a full reclassification could occur down the line,” said CFRA Research analyst Angelo Zino.
DOL leaders noted the rulemaking wasn’t likely to result in large worker classification changes and that the proposal isn’t intended to target any particular industry or business model. The agency also emphasized that its misclassification enforcement has been targeted toward low-wage industries, citing examples in restaurants, construction, and health care.
At the state level, gig companies have poured millions of dollars into efforts to keep their couriers and drivers classified as independent contractors. In California, DoorDash, Instacart, Lyft and Uber bankrolled a $200 million campaign in 2020 to pass a hotly contested ballot measure designed to exempt them from a state law requiring the companies to classify most of their workers as employees. But after the win, Proposition 22 was later struck down by a state judge and the companies are appealing.
In Massachusetts, Uber and Lyft sought to secure a ballot measure concerning the job status of drivers. However, in June, they were dealt a setback when a court ruled the proposed measure violated state law and was not eligible to be put to voters this fall.
(Updates with DoorDash comment, additional background starting in fifth paragraph.)
Most Read from Bloomberg Businessweek
A Digital Drive to Reform the $11 Trillion Global Gold Market
Exxon’s Exodus: Employees Have Finally Had Enough of Its Toxic Culture
©2022 Bloomberg L.P.
