Share prices of Uber, Lyft and DoorDash tumbled on Tuesday after the Labor Department announced proposed changes to worker classifications. The prospective guidance is designed to “combat employee misclassification,” the federal agency said in a statement.
Shortly thereafter, Uber’s stock price fell more than 10% to $24.61, while Lyft’s fell more than 12% to $11.22 and DoorDash fell more than 5% to $44.98 at the time of writing this article fell.
The rule could make it easier for contractors to find full employment if they are “economically dependent” on a company. However, the scope of the proposal itself would be limited to areas such as minimum wage enforcement.
Uber, Lyft, and DoorDash rely heavily on gig workers to haul people and meals around on their behalf, but don’t receive many hard-won employment benefits — like employer contributions to their Social Security and Medicare taxes. Despite pressure from union officials and some lawmakers, some tech companies have campaigned to keep their workers classified as independent contractors, arguing that the status benefits their companies, other local businesses and the workers themselves.
Ride-hail and food-delivery companies say changing the classification of gig workers would jeopardize their businesses, but these firms — Uber, Lyft and DoorDash — have also posted large net losses under the status quo.
Attempts to change the classification of gig workers in the US include a recent defeated ballot measure in Massachusetts that could have explicitly defined such workers as independent contractors.
In California, an attempt was made in 2019 to secure benefits for gig workers – AB-5s. A year later, app-based gig workers in California were barred from the law by Proposition 22, which itself was ruled unconstitutional in the state in 2021. However, app-based gig companies have appealed that ruling and continue to operate in California under the Direction of Prop 22. (Every day is a winding road.)
In a statement, Lyft said the Labor Department’s new proposal has “no immediate or direct impact on Lyft’s business at this time.” The company reiterated its argument that classifying gig workers as employees could deny those workers independence and flexibility. DoorDash posted a similar statement on its blog today.
Uber also mentioned flexibility in an email to TechCrunch, saying the “proposed rule takes a measured approach and essentially takes us back to the Obama era where our industry grew exponentially.”
In stark contrast, groups like Gig Workers Rising claim that an independent classification denies gig workers “basic worker protections and rights” such as unionization, a living wage, paid time off and other benefits.
“The Department of Labor remains committed to addressing the issue of misclassification,” said Secretary of Labor Marty Walsh. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”
The Labor Department’s proposal is subject to a public comment period, which runs from October 13 to November 28.