Shares in Uber continued a weeklong tumble on Thursday, as the ride-share group was unable to shake investor wariness over looming regulatory threats, despite financial performance suggesting its profitability goals had survived the pandemic intact.
The company’s stock price dipped sharply on Wednesday as executives began to detail, on its earnings call, a long and potentially fraught road ahead in fending off the latest threat — this time from the Biden administration’s labour department.
As markets opened on Thursday, Uber and rival Lyft had lost a combined market value of more than $20bn in the week since labour secretary Marty Walsh first signalled his intent to look more closely at the classification of workers on gig economy platforms.
The stock drop comes despite both companies reporting a gradual return of rideshare demand, reiterating their goal of achieving their first-ever quarter of profitability, on an adjusted ebitda basis, by the end of this year.
“We believe Uber remains in a solid position to navigate any potential challenges to its labour model,” said a note from analysts at Truist, “though this is an issue that’s likely to weigh down the stock in the near/medium terms.”
Earlier on Wednesday, the labour department withdrew a rule that the Trump administration had sought to push through in its final days, which would have made it easier for businesses to classify their workers as independent contractors, avoiding federally mandated rules on minimum wage and overtime.
The department said the rule was “in tension” with the text and purpose of the Fair Labor Standards Act.
“By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” said Walsh in a statement.
“Too often, workers lose important wage and related protections when employers misclassify them as independent contractors,” he added.
What happens next could have a significant bearing on the viability of the gig economy business model, particularly in states that have yet to pass their own legislation on the issue and would turn to federal leadership for guidance.
“Retraction of the rule is a first step,” said Shannon Liss-Riordan, a leading labour rights and gig economy attorney. “The Biden administration has made clear that it supports a stronger test for employee classification, and not a weaker test.”
While the labour department has indicated it would not be enacting any new rule in the immediate future, the Biden administration is pushing legislation before Congress that would bolster worker protection measures, including classification and unionisation.
Speaking to investors on Wednesday, Uber executives sought to alleviate concerns.
“I think it should surprise no one that the Biden/Harris administration’s approach on these issues is similar to the Obama/Biden administration’s approach,” said Uber’s chief legal officer Tony West.
West, who is the brother-in-law of vice-president Kamala Harris, stressed the labour department’s apparent eagerness to meet gig economy players in the coming months to discuss measures, pointing out that there was no single consensus within the Democratic party on the matter.
“We think all of that creates a real opportunity for a dialogue that can ultimately lead to a solution that gives gig workers the protections they deserve while preserving the innovation that gives them the flexibility that they desire,” West said.
Uber has been coy about the potential cost of making any of its 3.5m global active drivers and couriers into employees, but recent changes give some glimpse at how it might seek to handle future financial burdens.
Following the landmark UK Supreme Court ruling in February, in which the court ruled that drivers should fall under the country’s “worker” designation, Uber recognised a $600m accrual for costs it expects to bear in settling historical wage claims. “What we’re looking for is a level playing field and other ride companies to do the right thing,” said Uber chief executive Dara Khosrowshahi.
Faced with tight controls in Germany, Uber is experimenting with a fleet model, where drivers are employed by fleet management companies, similar to minicab firms, who are contracted by Uber.
In California, Uber was among the gig economy players that in 2020 bankrolled a new law, Proposition 22, that allowed the companies to avoid making workers employees, instead giving them limited benefits such as minimum earnings and some provisions for healthcare.
Costs to cover Prop 22’s expenses had mostly been passed to customers, said Uber’s chief financial officer, Nelson Chai, with no impact on demand.
John Zimmer, Lyft’s co-founder and president, suggested the Prop 22 playbook would be emulated. “I’m optimistic we’ll have a few more success stories on bringing this model to more states this calendar year,” he told investors.
But a recent survey, conducted by Tulchin Research in conjunction with union groups, suggested that as many as 85 per cent of app-based drivers had not made use of the healthcare benefits introduced by Prop 22, whether through not reaching the hours-driven threshold, not knowing enough about the plan, or simply not wanting what it offered.
Controversially, Uber has now removed some additional control it bestowed on California drivers — such as setting the price of fares — that it had used to argue its workers had more independence over how they work. The company is also looking at removing or altering the ability to see the trip destination before accepting, a feature that made the service less reliable because of drivers’ cherry-picking, Uber said.
“The history of what happened with Prop 22 in California provides a lot of lessons for workers’ advocates who are fending off such initiatives now in other states,” said Liss-Riordan. “The gig economy sold Prop 22 to the California voters as somehow in the interest of the worker, which is just a lie.”
Uber said: “Voters overwhelmingly passed Prop 22 because it’s what drivers actually wanted: flexibility with benefits. And in just the first three months since Prop 22 was implemented, Uber alone paid out tens of millions of dollars to drivers and delivery people in the form of new earnings guarantees, healthcare subsidies, and accident insurance.”