[I own DoorDash and Uber stocks.  This is not investment advice.  Please do your own due diligence.]

I disagree with the market’s reaction to today’s gig worker classification rule proposed by the Labor Department.

Here is why.

First of all, this is not a surprise. Today’s proposed rule is actually the Biden administration’s second attempt to set gig worker rules — a highly politicized topic.  The first attempt started on Feb 5, 2021 (the first month of the Biden administration), when the DOL published a proposal to delay a gig worker rule made under the Trump administration.  The Trump-era standard was later withdrawn by the Biden administration, got into a legal fight, got reinstated, and got into another legal fight.  The second attempt was initiated in Jun 2022, when the DOL under the Biden administration announced that it was developing a proposed rule.  In Sep 2022, Reuters wrote multiple stories about this upcoming rule. 

Second, gig apps are not going to go away.  For people not driving, they need Uber/Lyft to get around; for people not cooking, they like the convenience of using DoorDash to order food.  This is particularly relevant for younger generations who increasingly do not cook for themselves, nor own a car if they live in big cities. 

Three, no “ABC test” is great news.  In today’s proposed rule, the DOL made it abundantly clear that it chooses not to adopt the ABC test (a test that is hugely unfriendly against gig apps, considering all workers by default as “employees”; read more about the ABC test here).  Gig apps, including Uber, Lyft and DoorDash, spent over $200M in 2020 on California’s Prop 22, just to stop the ABC test from taking effect on them. So, today’s news is good news for gig apps!

Four, this rule is not specifically targeting gig apps.  Across the entire 184-page proposed rule document, the words “DoorDash” or “food delivery” was not even mentioned once.  “Uber” was mentioned twice, as part of one single legal case name.  The document talked extensively about agriculture, construction, home care, etc.  Because the targeted industries are so many, it would be reasonable to expect a large number of legal challenges to be soon brought up by many industry groups against the DOL, which could lead to delay or even invalidation of this rule. 

Five, for DoorDash in particular, an average driver is on delivery only four hours a week.  It makes little sense to classify a person who only works four hours a week as an “employee” while allowing this “employee” to be “employed” simultaneously by DoorDash, Uber Eats, Grubhub… the list goes on (think multi-apping).  Such a picture makes no common sense. 

Lastly, if this rule is forced onto gig apps, companies can pass on the cost to consumers with ease.  The consensus is that “employee” status would cost gig apps 30% more than “independent contractor” status.  Per my proprietary modeling, to pass on this 30% additional labor cost, Uber needs to raise its ride fares by about 24% at the check out point; DoorDash only needs to raise the check-out price by 3% to 4%.  For DoorDash in particular, this level of price increase is almost negligible given today’s high inflation.  

That is why I do not agree with the market’s reaction to today’s proposed rule from the DOL. 

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