Biden Proposal to Make Gig Workers Employees Sinks Uber and Lyft Stock

On Tuesday, the Biden administration released a proposal that could force so-called gig economy companies like Uber, Lyft, and DoorDash to classify their workers as employees. With the announcement, Uber’s stock was down as much as 17 percent, Lyft’s fell by 16 percent, and DoorDash’s had slipped 12 percent.

For well over a decade, the core strategy deployed by gig economy firms has been to obscure fundamentally unprofitable unit economics by upcharging on services and minimizing labor costs. The chief method to minimize labor costs has long been to misclassify workers as independent contractors rather than employees, denying them a minimum wage, overtime, health insurance, and other costly benefits that get in the way of spinning dismal financial results as favorable for investors.

The new rule would reintroduce a multi-factor test the Department of Labor can apply to companies that focuses on "whether each factor shows the worker is economically dependent upon the employer for work versus being in business for themself" to determine employment status under the law. 

“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,” said Secretary of Labor Marty Walsh in a statement on the proposal. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

App-based ride-hailing companies—the vanguard of the gig economy's proliferation—have taken steps to oppose that might subject them to basic labor laws that other industries have to abide by. The most successful effort to date was Proposition 22: a ballot measure in California that Uber, Lyft, DoorDash, Postmates, and Instacart spent over $204 million to push through and outright kill legislation that reclassified app workers as employees.

“The term 'independent contractor' refers to workers who, as a matter of economic reality, are not economically dependent on their employer for work and are in business for themselves,” the Labor Department proposal reads. “Such workers play an important role in the economy and are commonly referred to by different names, including independent contractor, self-employed, and freelancer. Regardless of the name or title used, the test for whether the worker is an employee or independent contractor under the FLSA remains the same.”

This proposal is the administration's second attempt to walk back the Trump administration's previous rule, which made it easier for businesses to classify workers as independent contractors. Biden gutted Trump’s rule in May of last year and returned to the precedent of a multi-factor test, but a federal court in Texas reinstated the rule this March after concluding the DOL has not properly considered policy alternatives. The new rule would return to using the multi-factor test as the standard for interpreting worker classification. 

These gig companies regularly claim that workers do not need nor want the benefits of standard employment, preferring "flexibility." In response to pressure to end misclassification—a New York Times op-ed by Uber CEO Dara Khosrowshahi admitted that Uber drivers "deserve better" —companies have sought compromises that preserve independent contractor status. Uber, for example, is pushing a hybrid worker classification that would give drivers some of the protections of employment and some of the supposed benefits of independent contractors. 

However, it’s been plainly clear for years that such a “third way” would be less of a compromise and more of an extension of the exploitative status quo imposed on workers today. Just last January, legal scholars Veena Dubal and Juliet B. Schor wrote a New York Times op-ed fleshing out the exploitative nature of app-based work and arguing for employee classification to protect workers.

“App workers need the same benefits afforded to traditional workers, including payment for time between assignments, unemployment benefits and the right to organize,” Dubal and Schor. “The pandemic, which greatly worsened conditions for delivery workers and “shoppers” (the people assembling grocery orders), has exposed just how vital basic protections are for vulnerable workers.”

The next steps for the proposed rule are to seek input from stakeholders. In a statement to Motherboard, Uber said that it will offer feedback on the proposal, which now enters a 45-day comment period. 

“The Department of Labor listened to drivers, who consistently and overwhelmingly state that they prefer the unique flexibility that comes with being an independent contractor," the statement said. "Today's proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially. In a time of deep economic uncertainty, it’s crucial that the Biden administration continues to hear from the more than 50 million people who have found an earning opportunity with companies like ours. We look forward to continued and constructive dialogue with the Administration and Secretary Walsh as this process progresses.”

When reached for comment, Lyft pointed Motherboard to a blog post it published on Tuesday. Lyft emphasized that the rule "is similar to the approach the Obama administration used to determine employee status" and reasoned that drivers would not be reclassified nor would the business model be forced to change. The company highlighted a "longer process" of deliberation before the rule would be implemented and said it could continue to advocate for hybrid schemes.

"Any new rule that addresses independent contractor status should be informed by those it impacts most: the workers," it said. "App-based work, in particular, is fundamentally different from traditional 9-to-5 work.”

DoorDash did not respond to Motherboard’s request for comment.

It's correct that ride-hailing companies  grew exponentially during the Obama era, but this was thanks to the administration’s hands-off approach to the tech sector, along with the deluge of investor capital looking for outsized returns after the financial crisis (and people desperate for work). Today’s world is a bit different, with interest rate hikes spurring investors to retreat a bit from the tech bubble, and regulators seemingly interested in actually enforcing labor and antitrust law. Rolling back to a previous legal regime when the material conditions have shifted and the ideological environment has lurched to a decidedly more critical one won’t, hopefully, lead to the same outcome.

Still, history has shown that allowing app-based labor platforms to drive discussions of what labor laws should look like is a dangerous game. Work by Dubal and others has accused companies of trying to reintroduce a digital form of piece-work by subverting the minimum wage requirement of the Fair Labor Standards Act, as well as effectively reintroducing a racialized wage code that exempts a largely Black and brown workforces from today’s labor laws. It’s not clear why labor proposals from these firms should be read as anything other than desperate attempts to dupe the public into re-legalizing old forms of exploitation and domination.