Uber, Doordash plunge after Labor Department proposes change to gig worker classification

Uber CEO Dara Khosrowshahi is interviewed on the trading floor at the New York Stock Exchange (NYSE) in New York, August 2, 2022.

The Biden Labor Department released a proposal that could pave the way for regulators and courts to reclassify gig workers as employees.

If the rule is adopted, it will raise costs for companies that rely on contract workers to pick up shifts on their own. The shares of all three companies fell on Tuesday.

Flexible schedules are attractive to workers and only possible under a contractor model according to the companies. The companies use the contractor model to reduce their own costs while denying workers important protections such as health care benefits, overtime pay, and the ability to organize into unions, according to some labor experts.

In 2020, a California law requiring companies to reclassify contract workers as employees went into effect, but later that year, voters approved a proposition that exempts app-based ride-sharing and delivery companies from the law.

The rule that would have made it easier for gig companies to classify workers as independent contractors was repealed by the Biden administration. A court restored the Trump-era rule after it was challenged.

The Labor Department said on the Federal Register that it had considered waiting longer to see how the rule would play out. Keeping the earlier rule in place would have a confusing and disruptive effect on workers and businesses, so it decided to go ahead with the proposed regulation.

The rule would allow the determination of whether a worker is a contractor or an employee to be based on more than one factor. The goal is to provide consistency for businesses that want to use independent contractors while protecting workers from being classified wrongly.

The new proposed rule will need to go through the formal regulatory process before it can be adopted.

The proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew immensely. In a time of deep economic uncertainty, it's important that the Biden administration hears from people who have found an earning opportunity with companies like ours.

There is no immediate or direct impact on the business at this time according to a post on the company's website. The rule doesn't reclassify the drivers as employees and doesn't force the company to change its business model. The rule does not result in re classification of drivers, as was the case under the Obama administration, according to the company.

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The company is trying to become a free cash flow company.