Uber Technologies Inc. and Lyft Inc. tumbled after the Biden administration issued a proposal for a federal rule that would change the way it approaches workers’ employment status, a move that could upend the ride-hailing companies’ business models since they rely on millions of gig workers.
The proposal, released Tuesday by the U.S. Labor Department, would make it easier for restaurant workers, delivery couriers, ride-hailing drivers and other gig workers to be classified as employees, rather than independent contractors. Such categorization would require that companies provide benefits and protections to them as employees, such as a minimum wage, paid overtime and contributions to unemployment insurance.
The Biden administration’s proposal lays out a new test the Labor Department will use to determine when workers should be considered employees or independent contractors. The assessment will consider multiple factors, including how “economically dependent” a worker is on a company and the level of control they have over their earnings 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, which could take several months to finalize, effectively reverts back to the guidelines enacted by the Obama Administration, which relied on a broader definition to assess employee status. The proposal, which will be published publicly on Thursday, will be followed by a 45-day comment period.
The new test is a potential blow to gig economy giants like Uber, Lyft, DoorDash Inc. and Instacart Inc., whose platforms are powered by millions of workers who are currently classified as independent contractors. The companies’ argue that classifying drivers and couriers that way allows greater flexibility, which they claim workers 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 employees enjoy.
Uber and Lyft shares tumbled 7% and 7.5% respectively. DoorDash slid 5.6%.
“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.”
Uber, in a statement said, “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.
Flex, an industry association that represents DoorDash, Instacart and other companies that have app-based gig workers, didn’t immediately respond to requests for comment
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 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.