The Labor Department on Tuesday unveiled a much-anticipated proposal that could classify millions of independent contractors as employees. And the news took a heavy toll on Uber’s stock, along with Lyft and DoorDash.
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On the wake of the proposal, Uber stock fell 7.2% to 25.55. Lyft stock fell 7.6% to 11.80. Meanwhile, DoorDash fell 5.6% to 45.
Gig drivers are called b Uber (UBER) and Elevator (LYFT) – as well as catering staff for DoorDash (DASH) and others – perform income-generating activities outside the traditional long-term relationship between employers and employees.
Additionally, instead of traditional full-time employment with a company, gig workers typically work as short-term, temporary, or independent contractors for one or more employers. The definition of gig workers can include construction workers, janitors, and home care workers. Others include freelancers and project-based workers.
“While there is much uncertainty about how the feds and states will handle this latest proposal, it’s a clear setback for the gig economy and a threat to the likes of Uber and Lyft,” Wedbush analyst Dan Ives said in a note. for customers.
Uber stock: Facing legal battles over profits
Gig workers have grown in popularity since the rise of Uber and Lyft, sparking legal battles that require workers to pay overtime, payroll taxes and Social Security benefits. A Labor Department proposal could change that.
Companies are required to provide certain benefits and protections to employees but not to contractors.
“While independent contractors play an important role in our nation’s economy, we have seen too many instances of employers misclassifying their workers as independent contractors,” Labor Secretary Martin J. Walsh said in a written statement. “Misclassification deprives workers of federal labor protections, including their right to full lawfully earned wages.”
Wedbush’s Ives said: “Based on the contractor’s business model for ride-sharing and other gig economy players, staffing will essentially upend the business model and cause some major structural changes.
Is the employee proposal excessive?
The Labor Department’s proposal does not currently have the legal force of a regulation specifically authorized by Congress. As a result, it only applies to laws that the department enforces, such as the federal minimum wage.
“While this is an interpretive rule for now, this raises some doubts about the likes of Uber and Lyft as the Street worries about the potential impact of these latest Beltway changes,” Ive wrote.
But RBC Capital Markets analyst Brad Erickson thinks the Labor Department’s decision is overblown.
“To some extent, we think that there is (mainly) nothing to do with it, and the decision does not seem to directly target industries such as healthcare, construction and food services,” Ericsson wrote in a note to clients. The long-term risk and likelihood of this happening is low.
Uber’s stock is down 40 percent this year.
Please follow Brian Diego on Twitter @IBD_BDeagon For more tech stocks, analysis and financial markets.
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