Shares of companies with the largest contract economy in the US tumbled after the Biden administration proposed a new rule that would make it more likely that contract workers would be classified as employees rather than contractors. independence.
Ride-hailing app Uber Shares of rival Lyft and food delivery service DoorDash fell as much as 16.7%, while shares of rival Lyft and food delivery service DoorDash hit a record low in New York trading on Tuesday as investors fretted over the labor department’s proposal. The US will significantly increase the cost of wages.
The proposal would establish a “test” that the labor department could use to determine whether workers are employees or independent contractors based on their level of control over hours and responsibilities. their job. It lowers the limit on employee status compared to a rule written during the administration of former president Donald Trump.
Because these and some other businesses classify their workers as contractors, they are not legally required to provide them with certain employment benefits. workers, such as minimum wages, overtime pay, and contributions to unemployment insurance and Social Security. Wedbush Securities analysts Daniel Ives and John Katsingris wrote in a research note that adding these benefits would “turn the business model upside down”.
Uber shares closed down 10.4% on Tuesday and Lyft fell 12%. DoorDash recovers some ground to close 6% lower.
According to a 2021 Pew Research Center report, about 9% of U.S. adults have earned money through an online gig in the past 12 months and could receive new employment benefits under the rule. suggested. Sweepers, construction workers, and home health workers can also gain employee status.
According to RBC analyst Brad Erickson, the probability of the Biden administration forcing contract companies to reclassify their workers is “low,” because it could force ride-hailing companies to lay off their jobs. eliminate 3 million to 4 million part-time drivers and significantly increase the price for the service.
Uber’s head of federal affairs, CR Wooters, said in a statement that the company’s drivers like the flexibility of the current agreement and the proposed rule as “essentially putting us back to the Obama era, in which our industry grew exponentially.”
Lyft said the proposal had “no immediate or direct impact” on its business because the drivers worked as contractors under similar Obama-era rules. DoorDash said it believes its workers have been properly classified and that it 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 short-term concern for the likes of Uber and Lyft,” Ives and Katsingris wrote. “While this is a rule of thumb for now, it will cause some uncertainty for the likes of Uber and Lyft like Uber and Lyft. [Wall] Streets worried about potential ripple effects from [these] Beltway’s latest changes,” they added, referring to the federal government.
Drivers have long campaigned to be reclassified as employees in the hope of improved wages and benefits. Worker advocates say being classified as independent contractors makes it impossible to earn a living wage.
Labor secretary Marty Walsh said: “While independent contractors play an important role in our economy, we have seen many cases where employers misclassify employees. Theirs are independent contractors”. “The misclassification deprives workers of their rights to federal labor protections, including their right to be paid in full their legally earned wages.”
The labor department said it would give the public 45 days to comment on the proposal before proceeding with the rule-making process.