Uber, Lyft stocks plunge after Biden official says drivers are employees

Stock in Uber is down more than 6 percent after President Joe Biden’s new labor secretary, Marty Walsh, told Reuters that drivers are employees under US labor law.

Stock in Lyft, whose business is more concentrated in the United States, is down 11 percent. DoorDash, which heavily uses contract workers for food deliveries, saw its stock fall by 8 percent. The S&P 500 stock index is up slightly.

The legal status of workers driving for Uber, Lyft, and DoorDash has become a controversial issue around the world. The companies argue that the contractor model allows them to not only operate more efficiently but also offer drivers increased flexibility. Uber, Lyft, and DoorDash argue that if they were forced to pay drivers by the hour, the companies would have to not only raise fares but also restrict drivers’ hours to make sure drivers only work at times when there are enough customers to keep them busy.

But those arguments haven’t always persuaded policymakers. In 2019, California’s legislature passed legislation classifying gig workers as employees—though that law was overturned by a voter initiative last November. A New York federal judge ordered Uber to pay unemployment benefits to some Uber drivers last year. Uber faces a lawsuit over the issue in Massachusetts.

The Supreme Court in the United Kingdom ruled in February that Uber drivers are legally workers—a status between employees and contractors that doesn’t exist in the US. France’s top court ruled last year that Uber drivers are employees under French law. Spanish courts reached a similar conclusion in September. Uber is facing class-action lawsuits in Canada and South Africa over the same issue.

In the United States, the federal government and individual states each have their own laws related to worker rights. So in theory, a gig worker could be considered an employee under federal law but not state law or vice versa. Federal law also defines employees slightly differently for different types of rights and benefits—such as minimum wage protections or the right to organize. Walsh may not be able to re-classify gig workers with the stroke of a pen, but he and other Biden administration officials will have a lot of influence over how the law treats gig workers over the next four years.

For example, in 2019, the Trump-appointed general counsel of the National Labor Relations Board concluded that Uber drivers should not be treated as employees for the purposes of collective bargaining rights—a ruling that seems likely to be reversed under Biden. In March, the Biden administration proposed to reverse another rule adopted late in the Trump administration that made it easier for companies to classify workers as independent contractors.

On Wednesday, the Biden administration chose a prominent Uber critic, David Weil, to head the Department of Labor’s Wage and Hour Division—the agency that tries to ensure companies are paying workers minimum wage and overtime benefits. The post could give him an opportunity to challenge Uber’s and Lyft’s pay practices. We interviewed Weil for a piece on the rise of contracting last year.