Shares of Uber and DoorDash traded higher Tuesday as the Biden administration enacted a rule setting stricter standards for when workers can be classified as independent contractors. Uber stock and DoorDash rose in afternoon trades despite the new rules that prompted a sell-off for both firms when they were first announced late in 2022.
The Department of Labor's new rules provide guidance on when a worker can be classified as a contractor, instead of an employee, under existing federal law. Workers should be considered employees and eligible for benefits and other legal protections if they are "economically dependent on an employer for work," among other factors, as the new rule states. It will take effect in March.
The rule could challenge the business of so-called gig work popularized by Uber, Lyft and DoorDash. But the companies each released statements Tuesday that they do not expect their operations will be affected.
On the stock market today, Uber stock climbed 2.2% to 60.31 in recent action. DoorDash stock rose 4.8% to 103.21, while Lyft slipped nearly 1% to 13.46. Each stock was trading in slightly below-average volume, according to IBD MarketSmith.
Rules For Classifying Employees
The new rule replaces a 2021 regulation enacted by the Trump administration. There are six factors employers must use for classifying workers, including "nature and degree of control" as well as whether the work is an "integral part of the potential employer's business," according to DOL guidance.
Federal officials say the rule takes aim at misclassification of workers. Independent contractors are not eligible for benefits such as the minimum wage and overtime pay.
"Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections," Acting Secretary of Labor Julie Su said in a news release.
Uber Stock: Company Says Business 'Not Materially Changed'
The rule change is seen as a potential problem for app-based companies such as Uber and DoorDash, which classify workers as independent. Uber stock plunged 10% when the DOL first published a draft of the rule on Oct. 11, 2022. Lyft lost 12% and DoorDash fell 6% at the time.
But the companies said Tuesday that the rule won't change their operations.
"This rule does not materially change the law under which we operate, and will not impact the classification of the over one million Americans who turn to Uber to earn money flexibly," Uber said in a news release. Lyft said in a blog post that it sees "no immediate or direct impact" to this point.
Meanwhile, DoorDash said, "we do not anticipate this rule causing changes to our business."
Questions For The Courts?
Investors appear to agree. Reuters reported Monday that the final rule was imminent. But Uber stock, Lyft and DoorDash each closed higher yesterday.
"The DOL rule is a reversion to the Obama-era framework on this issue, which the platforms grew up in," Bernstein analysts wrote in a client note Monday. "Rather than changing the law, it changes how the DOL interprets the law. And where it could have some implication is if it's used in courts to determine legal outcomes."
Other experts also expect the issue to play out in the courts.
"Pretty soon you're going to have a test case or multiple cases where a worker says I'm being treated like an independent contractor and I should be treated like an employee," Peter Norlander, a management professor at Loyola University Chicago, told the Wall Street Journal. "I think the ultimate resolution of this is to be determined."
