Uber Technologies Inc (NYSE: UBER) is in focus this morning after the U.S. Department of Labour proposed a new rule that “could” disable it from classifying its gig workers as independent contractors.
Why is it a bad thing for Uber shares?
If adopted, the proposal will increase costs for Uber as it’s made to reclassify its drivers as “employees” – because then the ride-hailing and delivery company will have to pay for their healthcare.
It will also enable the staff to organise into unions and be eligible for additional income on overtime. All of that could be a hiccup for the mobility company that’s been cutting costs this year to turn free cash flow positive.
Before it’s adopted, though, the proposal will go through the regulatory process, including a 45-day period for the public to comment. Peers like Lyft Inc and DoorDash Inc are also in the red on Tuesday.
Last month, CEO Dara Khosrowshahi said Uber Technologies was actually benefitting from inflation. (source)
Uber executive reacts to the news
According to the ride-hailing and delivery company, it classifies its drivers as independent contractors to make sure that they get to benefit from flexible schedules. Responding to the stock market news, CR Wooters – its Head of Federal Affairs said:
In a time of deep economic uncertainty, it’s crucial that the Biden Administration continues to hear from more than 50 million people who have found an earnings opportunity with companies like ours.
Activists and labour experts, however, disagree with that reasoning even though the surveys vouch for the popularity of its business model.
Uber shares lost as much as 15% this morning but recovered some later in the day. Wall Street sees upside to $47 in this stock on average that represents about a 100% increase from here.
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