What Uber, Lyft Investors Should Know About Proposed New Federal Employment Rule

Uber Technologies Inc UBER, LYFT Inc LYFT and other gig economy employers in California have a lot riding on the November election, when voters will have a chance to weigh in on Proposition 22.

The ballot question would exclude these companies from new state laws requiring gig economy companies to classify their workers as employees rather than independent contractors.

Yet a new federal rule could soon change worker classification on a national level.

What Happened: On Tuesday, the Labor Department proposed a rule that would clarify the differences between contractors and employees.

The new rule would consider two primary factors: the nature and degree of the worker’s control over the labor and the worker’s opportunity for profit or loss based on initiative and/or investment. The new rule would also consider factors such as the amount of skill required for the job, the permanence of the position and whether the work contributes to an integrated production unit.

Why It’s Important: The new federal rule is likely good news for Uber and all other gig economy companies, BofA Securities analyst Justin Post said in a note. 

“The language of the ‘economic reality test’ (determining if a worker is economically dependent on the company) may seem negative for Uber at first glance, but the underlying factors to
determine the economic reality are in Uber’s favor,” the analyst said. 

Unfortunately for Uber and Lyft, Post said state law will likely supersede the federal rule, so California’s AB5 and Prop 22 remain critical for the companies in the near-term.

The BofA analyst said he is optimistic Prop 22 will pass in California, adding that any polling on the issue leading up to the election could create additional volatility in the stock.

BofA Securities has a Buy rating on Uber with a $44 price target.

Benzinga’s Take: Prop 22 may be the major catalyst for Uber in the fourth quarter, but rising COVID-19 cases in Europe are also a major catalyst.

Fortunately for Uber investors, Uber’s risk associated with potential lockdowns is mitigated in part by its Uber Eats food delivery business.

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Photo courtesy of Uber.