Uber and Lyft shares dropped as a proposal by the U.S. Department of Labor arises

The U.S. Department of Labor is putting forward a bill that would prevent firms from treating workers as independent contractors as of Tuesday. The measures are expected to affect sectors, including delivery, ride-hailing and others, where these workers are needed.

As a consequence, shares of Uber, Lyft and DoorDash are down more than 10%. The bill has also been criticized by employers.

Workers should be considered ordinary employees, and receive more benefits and legal protection, particularly in case of economic dependency on a business owner, the Labor Department proposed. However, this could adversely impact company profits, the employment process, and household income, along with the quality of workers’ life.

The regulator also stated the following factors would be taken into account: "the ability of the business to make profits or incur losses, the attraction of investments, their duration, the degree of employer’s control over the employee, and whether the activity is an integral part of the business." 

Following several federal labor laws that proclaim minimum wages and overtime pay, these rules are only applied to company employees. Studies have shown rank-and-file workers to cost firms 30% more than independent contractors.

U.S. Secretary of Labor Marty Walsh noted businesses often misclassify employees as independent contractors. “This division is wrong as it deprives workers of their rights, for instance, receiving a legal wage," he said.

As Liz Schuler, president of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) claimed, the bill promotes mechanisms to protect workers during their "misclassification" as independent contractors.

The U.S. Chamber of Commerce, a business lobbying group, along with the National Association of Home Builders (NAHB), the National Retail Federation (NRF) and the Association of Builders and Contractors (ABC) have demanded less drastic measures from officials in order to create a business-friendly environment. They said the bill, put forward by the regulator, would have a negative impact on workers in various industries who strive to remain independent and have more flexible working conditions.

The National Retail Federation stated on Tuesday that it "strongly opposes the changes" and believes the bill to be unreasonable. The Flex Association, while representing Uber, Lyft, and DoorDash, also noted the proposal should be reconsidered as the policy is primarily aimed at "preserving the independence" of workers.

According to Wedbush analyst Dan Ives, the Labor Department's bill would "hit many enterprises, including Uber and Lyft, and present an issue in the short run."

"Given that most sectors involve workers, moving them into the ranks is likely to turn the business model upside down and cause structural business changes," Ives noted. 

The bill is expected to be officially released on Thursday, Oct. 13. It will be followed by a 45-day discussion period.