On October 11, Uber stocks fell 10.42%, and the day’s trading session ended with Uber Technologies Inc.’s (NYSE:UBER) stock priced at 24.66 per share. The steep drop might be attributed to the new labor restrictions that the Biden administration suggested about gig workers.
The New Plan Before It’s Approved
Under the Fair Labor Standards Act, the United States Department of Labor announced on October 11, 2022, the release of a proposed rule to refresh the department’s guideline on determining whether an employee or an independent contractor (FLSA). The rule that now provides a higher weighting to the extent to which workers exert control over their activities and earning prospects will be replaced once the proposal becomes effective and superseded by the new rule.
When defining the status of an employee, the present proposal will consider some different elements. When attempting to determine whether or not a person is genuinely in business for themselves, it is critical to evaluate the degree to which they are “economically dependent” on a particular organization. Other considerations include the potential for either profit or loss. According to the government, the proposed regulation reduces the likelihood that workers may be incorrectly classified as independent contractors.
Why Uber Stock Is Starting to Feel the Pressure
It is anticipated that the completion of the plan will need a significant amount of time. The public will have the opportunity to comment on the plan for 45 days, with the process coming to a close on November 28, 2022, at 11:59 p.m. ET. However, on the news that the Labor Department will reform laws on classifying workers as employees or independent contractors, Uber stocks plummeted.
Because its drivers are considered independent contractors rather than employees, Uber (Uber stock) currently enjoys considerable cost savings in labor. Changing the status of the hands from independent contractors to employees will inevitably increase the cost of labor.
Not only did Uber stocks price fall, but other companies’ prices also did. Its competitor in the ride-hailing industry, Lyft LYFT, performed much worse than it did, suffering a loss of value of 12% on October 11. Like Uber (Uber stock), Lyft reduces its expenses related to employees by using independent contractors. As a result, the plan, if finalized, may add more gig workers to its payrolls, increasing labor costs.
In point of fact, Lyft is already experiencing significant difficulties due to inflation. As a direct result of this, LYFT has decided to halt the recruitment of new staff until the end of the year. The most recent information on the possible reclassification of its workers as employees rather than independent contractors brings more bad news in the form of significant increases in the price of labor.
Following the announcement of the plan to classify workers as employees if they are “economically reliant” on a firm, shares of another company that participates in the gig economy, DoorDash (DASH), fell as well (by 5.99% on October 11).
Local companies may use the logistical and technological infrastructure that DoorDash provides. The platform that DASH provides links dashers, customers, and merchants. In December 2020, DASH began trading publicly.
The plan will provide more benefits and legal protection to workers than contractors. As a result, the labor expenses of companies like Uber, Lyft, and DoorDash would rise, which would adversely affect the company’s profitability. The ridesharing companies Uber, Lyft, and DoorDash, are currently ranked #3 by Zacks.
Featured Image: Megapixl @Prykhodov
Author Valerie Remorosa 
