Third-party delivery’s labor model is on thin ice, and the Labor Department just turned up the heat.
The agency this week proposed a new rule that would make it easier to classify independent contractors as employees. The rule could have a big impact on companies like DoorDash, Uber Eats and Grubhub, which use independent contractors to deliver food.
Those companies favor what is essentially a freelancer relationship because it’s cheaper. They aren’t obligated to give those freelancers a minimum wage or overtime or healthcare. And they say that workers like it because they can work whenever and wherever they want.
And yet the system is increasingly under fire. The Federal Trade Commission last month took up a more aggressive stance on gig companies’ labor practices. Seattle passed a law directing those companies to pay workers more. And classification battles are ongoing in California and Massachusetts. If the DOL’s rule is approved, it would be the most far-reaching strike on the independent contractor model so far, creating a nationwide standard for employers and regulators.
This is all unfolding alongside a broader push for workers’ rights under the labor-friendly Biden administration, a movement that has spread to restaurants, including coffee giant Starbucks and fast-food chains in California.
Taken together, it amounts to a growing wave that could be hard to turn back and in some cases has already crested.
On the same day the DOL floated the new rule, in fact, grocery delivery service Instacart settled a first-of-its-kind lawsuit with the city of San Diego that looked at whether its “shoppers”—workers who deliver groceries—are independent contractors or employees.
“Employees” won: Instacart agreed to pay $45.6 million to more than 300,000 shoppers to cover expenses for things like gas and cellphones they incurred while on the job.
It’s still unclear what kind of an impact the DOL’s proposal would have. Officials suggested the rule—made up of a six-part “economic realities” test—would be applied on a case-by-case basis. DoorDash, for its part, said it doesn’t think the new criteria would change its business model.
Nonetheless, the mere existence of such a rule introduces more risk into businesses that haven’t exactly wowed investors this year. DoorDash and Uber stocks are down 68% and 41% year to date, respectively, and each took a dive on Tuesday after the DOL unveiled its proposal.
“This is a shot across the bow,” Wedbush Securities analyst Dan Ives said in an interview on Ausbiz TV. “It would really turn the business models upside down.”
The companies are sure to stand their ground. The biggest players have banded together under a group called Flex, which is adamant that transitioning to a full employee model will hurt gig workers by taking away their independence and even forcing them out of the job entirely.
Instead, it says, officials should pursue “common-sense policies” that will improve gig work, though it didn’t say what those might be.
It’s possible they will resort to promoting a hybrid approach like Uber’s independent contractor plus (IC+) model, which allows drivers to remain independent while receiving some benefits.
IC+ is in place in California and Washington, he said, “and we continue to have dialogue all across the U.S.,” CEO Dara Khosrowshahi told investors in August, according to a transcript on financial services site Sentieo.
But many gig workers support employee status, in part because it would allow them to unionize.
“Gig workers deserve all of the rights that other employees have, including the right to organize,” said advocacy group Gig Workers Rising in a statement. “This rule can help establish bedrock protections for app-based workers and provide an important tool to fight for respect and safety on the job.”