The Labor Department on Tuesday unveiled a much-anticipated proposal that could reclassify millions of independent contractors as employees. And the news took a heavy toll on Uber’s stock, along with those of Lyft and DoorDash.
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On the back of the proposal, Uber shares fell 7.2% to 25.55 during afternoon trade in the stock market today. Lyft shares fell 7.6% to 11.80. Meanwhile, DoorDash fell 5.6% to 45.
So-called gig drivers for Above (UBER) and lyft (LYFT) – as well as food suppliers for DoorDash (DASH) and others – conduct income-generating activities outside of the traditional, long-term relationship between employers and employees.
Additionally, instead of holding a traditional full-time job at a single 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 are freelancers and project workers.
“While there is great uncertainty about how federal and state governments will deal with this latest proposal, it is a clear blow to the gig economy and a short-term concern for companies like Uber and Lyft,” said Dan Ives, analyst at Wedbush, in a Note to customers.
Uber Stock: Benefit litigation
Gig workers have become popular since the rise of Uber and Lyft, sparking legal battles that could force workers to pay overtime, payroll taxes and Social Security benefits. The Labor Department’s proposal could change that.
Businesses are required to provide certain benefits and protections to employees, but not to contractors.
“While independent contractors play an important role in our economy, we have seen in many cases employers misclassify their employees as independent contractors,” Labor Secretary Martin J. Walsh said in a written statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”
Wedbush’s Ives said: “With ridesharing and other gig economy players dependent on the contractor’s business model, a classification for employees would essentially turn the business model on its head and cause some major structural changes.”
Is the work proposal exaggerated?
The Labor Department’s proposal does not currently have the legal force of an executive order expressly approved by Congress. As a result, it only applies to laws that the Department enforces, such as B. the federal minimum wage.
“While this is a rule of interpretation for now, it will create some uncertainty about companies like Uber and Lyft as the street worries about the potential impact of these recent Beltway changes,” Ives wrote.
However, RBC Capital Markets analyst Brad Erickson believes the Labor Department’s decision is overblown.
“We think this is, to some extent, much ado about (largely) nothing, as the ruling is aimed more directly at industries like healthcare, construction and hospitality,” Erickson wrote in his note to clients. “We would see the bigger picture given the long-term risk and likelihood of this happening is so low.”
Uber stock is down 40% this year.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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