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Uber, Lyft stocks plunge after Biden official says drivers are employees
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Stock in Uber is down more than 6 percent after President Joe Biden’s new labor secretary, Marty Walsh, told Reuters that drivers are employees under US labor law.

Stock in Lyft, whose business is more concentrated in the United States, is down 11 percent. DoorDash, which heavily uses contract workers for food deliveries, saw its stock fall by 8 percent. The S&P 500 stock index is up slightly.

The legal status of workers driving for these companies has become a controversial issue around the world. Uber, Lyft, and DoorDash argue that the contractor model allows them to not only operate more efficiently but also offer drivers increased flexibility. The companies argue that if they were forced to pay drivers by the hour, they’d have to not only raise fares but also restrict drivers’ hours to make sure drivers only work at times when there are enough customers to keep them busy.

But those arguments haven’t always persuaded policymakers. In 2019, California’s legislature passed legislation classifying gig workers as employees—though that law was overturned by a voter initiative last November. A New York federal judge ordered Uber to pay unemployment benefits to some Uber drivers last year. Uber faces a lawsuit over the issue in Massachusetts.

The Supreme Court in the United Kingdom ruled in February that Uber drivers are legally workers—a status between employees and contractors that doesn’t exist in the US. France’s top court ruled last year that Uber drivers are employees under French law. Spanish courts reached a similar conclusion in September. Uber is facing class-action lawsuits in Canada and South Africa over the same issue.

In the United States, the federal government and individual states each have their own laws related to worker rights. So in theory, a gig worker could be considered an employee under federal law but not state law or vice versa. Federal law also defines employees slightly differently for different types of rights and benefits—such as minimum wage protections or the right to organize. Walsh may not be able to re-classify gig workers with the stroke of a pen, but he and other Biden administration officials will have a lot of influence over how the law treats gig workers over the next four years.

For example, in 2019, the Trump-appointed general counsel of the National Labor Relations Board concluded that Uber drivers should not be treated as employees for the purposes of collective bargaining rights—a ruling that seems likely to be reversed under Biden. In March, the Biden administration proposed to reverse another rule adopted late in the Trump administration that made it easier for companies to classify workers as independent contractors.

On Wednesday, the Biden administration chose a prominent Uber critic, David Weil, to head the Department of Labor’s Wage and Hour Division—the agency that tries to ensure companies are paying workers minimum wage and overtime benefits. The post could give him an opportunity to challenge Uber’s and Lyft’s pay practices. We interviewed Weil for a piece on the rise of contracting last year.

A car waits for passengers beside traffic cones labelled

Lyft has sold its self-driving division to a Toyota subsidiary called Woven Planet for $550 million—the latest sign that it takes deep pockets to compete in the self-driving arena. Lyft’s main competitor, Uber, sold its own self-driving unit to the well-financed startup Aurora back in December.

Lyft announced its self-driving project back in 2017, a time of extreme optimism about self-driving technology. A few months earlier, in late 2016, Lyft President John Zimmer predicted that a majority of Lyft rides would be handled by self-driving vehicles by 2021.

Obviously, that isn’t going to happen. Today, Alphabet’s Waymo is operating a small taxi service in the Phoenix area. Besides that, no one is operating fully driverless taxi services in the US, and most other companies aren’t expected to introduce driverless products this year.

As the timeline for driverless technology has lengthened, smaller companies working on the technology have been forced to sell to larger rivals: Zoox sold to Amazon last year, while Voyage sold to Cruise last month.

Amazon obviously has deep pockets. And Cruise counts GM, Honda, and Microsoft among its backers, giving it the financial resources to continue pursuing the technology for years to come.

In contrast, Lyft is a relatively small company that has struggled to make its main ride-hailing business profitable. Unloading an expensive research project will help Lyft balance its books. Lyft says it will save about $100 million per year.

In recent years, Lyft has pursued a two-track strategy: it has simultaneously worked on its own self-driving stack, and it has forged partnerships with other companies working on the technology. Lyft has long sought to provide an open platform where a wide range of companies could offer autonomous rides.

Now that Lyft is no longer building its own autonomous technology, its self-driving strategy will need to focus exclusively on these partnerships. Along with the acquisition of Lyft’s self-driving team, Lyft and Woven Planet have agreed to share data and collaborate on the eventual inclusion of Woven Planet’s self-driving vehicles on Lyft’s network.

That might not be a bad strategy. Self-driving companies may not want to bear the costs of building a ride-hailing network from scratch. Moreover, early self-driving vehicles may only be able to service certain routes. So if a self-driving technology provider can plug into Lyft’s network and selectively serve routes that are consistent with its capabilities, that could be a win-win for both companies.

Portrait of driver wearing protective medical mask

Around this time last year, Uber and Lyft saw demand plunge for their flagship ride-hailing services as fear of the coronavirus kept most people at home. By May 2020, Uber’s ride bookings had plunged 80 percent from the level a year earlier.

But now, as people get vaccinated and some states are relaxing public health restrictions, demand for rides is soaring. And Uber and Lyft are struggling to recruit enough drivers to meet their needs.

“It takes forever to get an Uber now,” a man outside Boston’s Fenway Park told the local NBC 10 television station. Another man who’d just completed an Uber trip to Fenway said he’d waited 16 minutes for his driver to arrive.

Uber is stepping up recruitment

It’s not surprising that drivers would be in short supply. The risks of catching COVID haven’t gone away, so people are still taking a health risk when they drive passengers. At the same time, the economy is bouncing back, bolstered by the last year’s high saving rates and lavish stimulus spending. Many people who were working as Uber or Lyft drivers in early 2020 have moved on to other jobs.

More fundamentally, recruiting drivers takes time and effort. Uber and Lyft spent billions of dollars building up their pool of drivers in the first place.

Uber says that as a result of driver shortages, drivers can make a lot more money now than they did before the pandemic. One of the best-paying cities is Philadelphia, where Uber says drivers are making an average of $31 per hour. Other high-paying cities include Chicago (almost $29/hour), Miami, and Phoenix (both about $26/hour).

These figures include the time drivers are waiting between rides, but they don’t include expenses, which Uber says average around $4 per hour.

On Wednesday, Uber announced plans to sweeten the pot further by offering drivers incentives worth $250 million.

Some regions face specific challenges

While ride-hailing companies are facing shortages across the country, some regions have been hit especially hard. Boston is one of them. Uber says that Boston-area riders are suffering particularly long wait times because Gov. Charlie Baker has declared a state of emergency that effectively prohibits Uber from using surge pricing. Surge pricing helps to balance supply and demand not only by paying drivers more, but also by encouraging riders to wait or take alternative forms of transportation.

Meanwhile in California, Uber says it’s reconsidering features that let drivers in the Golden State see ride destinations and set their own prices. The changes were adopted early last year as part of Uber’s effort to convince the courts that its drivers were independent contractors rather than employees. But Uber recently told the San Francisco Chronicle that the system wasn’t working well—that drivers were cherry-picking the most lucrative rides and declining the rest. That exacerbates the already poor user experience created by the driver shortage, since it means that customers with less lucrative rides may struggle to match with a driver.