Labor Department Change to Gig Worker Classification Causes Stock Market Plunge

Last Tuesday, the Biden Labor Department released a proposal that might result in raised costs for companies like Lyft, Uber, Instacart and Doordash. According to CNBC, the proposal “could pave the way for regulators and courts to reclassify gig workers as employees rather than independent contractors.”

CNBC also reported, “Shares of Lyft fell nearly 10% on Tuesday morning, while Uber dropped 8% and DoorDash shed 6%.”

When it comes to the use of independent contractor status, there are two different arguments. CNBC noted, Companies like Uber, Lyft, Instacart and DoorDash “have argued that flexible schedules are attractive to workers, pointing to surveys showing the popularity of the model, which they say is made possible by the use of independent contractor status.” However, some labor experts and analysts have pointed out that the companies use the contractor model to reduce their own costs. Additionally, contract workers are denied “health-care benefits, overtime pay and the ability to organize into unions,” CNBC explained. 

Last year, the Trump-era rule was reinstated after a legal challenge that involved the Biden administration. They “rescinded a rule created under Trump’s Labor Department that would have made it easier for gig companies to classify workers as independent contractors instead of employees.”

Biden’s Labor Department gave its reasoning for moving ahead with the new regulation in its notice to the Federal Registration. They believe that keeping the earlier rule in place “would have a confusing and disruptive effect on workers and businesses alike due to its departure from case law describing and applying the multifactor economic reality test as a totality-of-the-circumstances test.”

The goal of the new proposed regulation is “to protect workers from being classified improperly while providing consistency for businesses that wish to employ independent contractors.”