Shares of major gig-economy platforms climbed on Thursday after the U.S. Department of Labor proposed to rescind a 2024 rule that made it harder for firms to label workers as independent contractors rather than employees. Uber Technologies (NYSE:UBER) rose about 4%, DoorDash (NASDAQ:DASH) also gained 4%, Lyft (NASDAQ:LYFT) advanced 4%, and Maplebear (NASDAQ:CART) increased roughly 3.3% following the announcement.
The Labor Department said the 2024 regulation required companies to treat workers as employees under federal wage laws when those workers were deemed "economically dependent" on the company for work. Under the new proposal, the department would replace that standard with one that emphasizes how much control firms exercise over workers - a framework that has drawn support from business groups.
Labor officials characterized the 2024 rule as legally flawed and said it curtailed the flexibility that independent contracting can provide to some workers. The proposed rollback would largely revive an earlier standard - one that was in place before the 2024 rule and that had been adopted during the previous administration - which permitted treating workers who run their own businesses or who serve competing companies as contractors.
Market participants pointed to potential cost implications for employers. The article notes that employees can cost businesses as much as 30% more than contractors, based on several surveys, because employees are eligible for minimum wage, overtime pay, unemployment insurance and other statutory protections. That differential helps explain why companies in sectors with heavy contractor use reacted positively to the proposal.
Industry groups and companies that rely extensively on contractors are likely to be among the primary beneficiaries if the proposal becomes final. The Labor Department singled out trucking, healthcare, retail sales and app-based transportation and delivery services as sectors that depend heavily on contractor work.
For now, the measure is a proposal and not a final rule, leaving a period of regulatory uncertainty until any change is adopted. If implemented, the proposal would restore a control-focused test that had governed contractor classification before the 2024 rule altered the standard.
Implications
- Short-term market reaction favored gig-economy and delivery companies, with notable share gains recorded on Thursday.
- Shifting the federal test from an "economic dependence" standard to a control-based standard would lower classification risk for firms using contractors if the proposal is finalized.
- Sectors most affected include trucking, healthcare, retail sales and app-based transportation and delivery services.