Uber, LYFT, DoorDash Tumble as Feds Propose Rule to Reclassify Drivers as Employees
Companies soft pedal possible impact but analyst says it would be a major blow
Shares of Uber Technologies, Lyft, and DoorDash all fell on Tuesday after the federal government published a proposed rule that would make the companies' drivers employees and not contractors.
The new rule, if adopted, would amend the 1938 federal Fair Labor Standards Act. That act late in the Great Depression granted workers minimum wage, overtime pay, and other benefits. The Trump Administration put its interpretation of the act into policy, and the rule revision would codify gig workers' rights.
Lyft shares (US:LYFT) closed off 12% at $11.27, Uber (US:UBER) ended the day off by 10.4%, and DoorDash (US:DASH) shed 6% to $44.85.
Through the Labor Department, the government said the proposal would protect workers' rights. The official news release said, "the ultimate inquiry is whether, as a matter of economic reality, the worker is either economically dependent on the employer for work (and is thus an employee) or is in business for themself (and is thus an independent contractor)."
DoorDash said on its website that the proposed rule change shouldn't affect any of its drivers' status and posted a statement that asserted the draft rule change should not change the status of the company's drivers.
"We do not anticipate this rule causing changes to our business model or Dashers' status as independent contractors," it said.
A post on Lyft's blog echoed DoorDash and said it expects it will be a long process before a final rule is adopted. Lyft reiterated the industry mantra that workers choose the contractor status for independence and flexibility.
Lyft concluded by saying, "federal policy makers should listen to a large and diverse group of drivers before publishing a final rule," Lyft said.
For its part, Uber also stuck to the mantra of the benefits of independent contractor status.
Uber Head of Federal Affairs CR Wooters issued a statement that seems supportive of the proposed rule.
"In a time of deep economic uncertainty, it's crucial that the Biden administration continues to hear from the more than 50 million people who have found an earning opportunity with companies like ours. As this process progresses, we look forward to continued and constructive dialogue with the Administration and Secretary Walsh."
The proposed rule change would affect drivers and a whole range of workers who often have contract statuses, such as home care providers and construction workers. With a shift to employee status, the workers would be covered by minimum wage laws and other benefits and regulations.
"We believe this proposed rule will help ensure workers covered under the Fair Labor Standards Act are not deprived of the wage and hour protections they are due under the law," Labor Secretary Marty Walsh said on Twitter."
Wedbush analyst Dan Ives wrote in a Tuesday research comment that the change would be a "clear blow to the gig economy."