Gig worker stocks are taking a hit on Thursday. Uber (NYSE:UBER), Lyft (NASDAQ:LYFT), DoorDash (NYSE:DASH) and Fiverr (NYSE:FVRR) are all tumbling, following commentary from U.S. Labor Secretary Marty Walsh. So what do you need to know right now?
To start, Walsh said that most gig economy workers should be classified as employees, as opposed to independent contractors. Currently, ride-hailing companies like Uber and Lyft, and food delivery companies like DoorDash and Grubhub (NYSE:GRUB), classify their drivers as contractors. The same goes for freelance companies like Fiverr and Upwork (NASDAQ:UPWK).
As Nandita Bose wrote for Reuters, this is the first time Walsh has expressed an opinion on the gig economy. However, it aligns with a broader vision from President Joe Biden to expand protections on workers. Walsh said:
“We are looking at it but in a lot of cases gig workers should be classified as employees… in some cases they are treated respectfully and in some cases they are not and I think it has to be consistent across the board.”
What does this mean for investors? The immediate impact has been negative on the gig economy stocks. At the time of writing, Uber stock was down 5%. DoorDash shares were down nearly 8%, and FVRR stock was down just over 4%. Lyft stock was down nearly 11%. Importantly, Bose highlights that Walsh’s vision would significantly raise costs for these companies. They would be required to offer benefits such as health insurance, paid sick leave, and consistent compensation.
According to Walsh, he and the Department of Labor will hold a series of conversations with relevant gig worker companies to address this proposal.
Gig Worker Stocks Tumble on Walsh Comments
So what else do investors need to know as gig worker stocks tumble?
Importantly, supporters of companies like Uber and Lyft have long been campaigning against this type of policy move. After California passed Assembly Bill 5, which required ride-hailing companies to classify their drivers as employees, Uber, Lyft and their peers poured money into lobbying. They argued that there are clear distinctions between their independent contractors and full-time employees, and that such a move would destroy the future of their businesses. In November 2020, California voters sided with the ride-hailing giants, passing Proposition 22. As a result of this ballot measure, drivers in the state remained classified as contractors.
At the time, experts thought Uber and Lyft had defeated a key battle. Many believed they would take measures to protect themselves on the federal stage, perhaps making Walsh’s comments today surprising.
However, as Bose highlights for Reuters, many Americans are engaged in the gig economy, and therefore left without employer-sponsored healthcare or other benefits. The Covid-19 pandemic exposed that, and Walsh says that reality also contributes to his plan.
So what is the bottom line? Walsh’s comments today could precede official rulings from the Department of Labor, and investors will likely be wary when it comes to gig worker stocks. Expect Uber & Co. to continue their fight against such policies.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is the Editor of Today’s Market with InvestorPlace.com.