Uber and Lyft shares slump on US ‘gig’ economy plan

US – Shares in some of the world’s largest gig economy companies have plunged after the US government outlined a plan to change the way they treat workers.

Under the US Department of Labor proposal, workers are more likely to be classified as employees rather than independent contractors. Shares of companies including Uber and Lyft fell over 10% on the news.

Tens of millions of people work in the global gig economy, providing services such as food delivery and transportation. U.S. Labor Secretary Marty Walsh said the rule would aim to prevent companies from misclassifying workers as independent contractors.

Mr. Walsh said his department has seen many instances of “employers misclassifying their employees as independent contractors, especially among our nation’s most vulnerable workers.”

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Shares of Uber closed 10.4% lower in New York trading on Tuesday, Lyft 12% lower and DoorDash 6%. Dan Ives, an analyst at Wedbush Securities, said the plan was “a clear blow to the gig economy and a short-term problem for companies like Uber and Lyft.”

“With ride sharing and other gig economy players depending on the contractor business model, a classification to employees would essentially throw the business model upside down and cause some major structural changes,” Mr Ives said in a note.

Gig economy firms have come under increased scrutiny as the industry has grown. Payments company Mastercard has estimated that 78 million people will be employed in the gig economy by next year.

Gig workers are paid for individual tasks, such as delivering food or driving a car, rather than regular wages. Most US federal and state labor laws, such as those requiring a minimum wage or overtime pay, do not apply to gig workers.

Last year, the UK Supreme Court ruled that Uber drivers should be treated as employees, not self-employed. It came after two former drivers said they should be eligible for minimum wage and holiday pay.

James Farrar and Yasin Aslam first sued the company in labor litigation in 2016. Uber said the decision was for a small number of drivers and the company has since made changes to its business.