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The Labor Department on Tuesday proposed a rule that could cut at the heart of the business models of Uber Technologies Inc., Lyft Inc., DoorDash Inc. and other companies that primarily rely on “gig workers,” and could affect the classification of contract workers in many other industries.
The new rule would change who can be considered an independent contractor instead of an employee, and would return to a previous test to determine whether workers are truly independent. It would replace a rule enacted by the Trump administration that went into effect last year right before President Joe Biden took office.
“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” Secretary of Labor Marty Walsh said in a statement.
In-depth: There is no legal definition of ‘gig work,’ but that could change soon
Shares of Uber
UBER,
Lyft
LYFT,
and DoorDash
DASH,
fell sharply in Tuesday morning trading, declining 6% or more as of noon Eastern. Lyft and DoorDash shares hit all-time intraday lows of $10.82 and $41.77, respectively.
Ride-hailing giants Uber and Lyft issued optimistic statements about the new rule Tuesday, while DoorDash and Instacart referred MarketWatch to the Flex Association, which did not immediately return a request for comment.
“Today’s proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially,” CR Wooters, head of federal affairs at Uber, said in an emailed statement. “We look forward to continued and constructive dialogue with the Administration and Secretary Walsh as this process progresses.”
In a blog post, Lyft said the proposed rule does not change the classification of its drivers and does not force the company to change its business model. “There is no immediate or direct impact on the Lyft business at this time,” the company said in its blog post. “This is just the first step in what is likely to be a longer process before any final rule or determination is made.”
Tom White, an analyst for D.A. Davidson, agreed with that view.
“The magnitude of early selloff of Uber and Lyft feels overdone to us… This proposed rule makes no immediate changes to anything,” he wrote in an email to MarketWatch, adding, “It’s a proposal that in some ways can be viewed more like a conversation starter.”
According to the department’s news release, its Wage and Hour Division considered feedback from stakeholders over the summer and is now asking for comment on the proposed rule. Starting Thursday, there will be a 45-day comment period that ends Nov. 28. If the proposed rule is finalized, it is expected to take effect early next year.
See also: FTC sends a warning to Uber, Lyft, DoorDash and other ‘gig-work’ companies
Patricia Campos-Medina, executive director of the Worker Institute at Cornell University, said the rule would “very clearly spell out who is an independent contractor — and it should not be someone totally working for one employer. Or if you are not engaged in entrepreneurial work, companies should not be avoiding paying employment taxes.”
Campos-Medina also said the proposed federal rule would solve the “mismatched rules” that differ by state. That consistency is something the gig companies themselves have requested, she said.
Nicole Moore, president of Los Angeles-based Rideshare Drivers United, on Tuesday called the Labor Department’s move an important first step for workers.
“It’s really the first movement by the Biden administration to help the millions of app workers who are being completely underpaid with no safety net or rights,” Moore said. “My hope is that it will inspire lawmakers to actually write the laws that we need to take the next steps.”
The Labor Department said the rule could also affect workers in the following industries: home care, construction, janitorial, trucking, hospitality, restaurant and more.
