What happened

Shares of ridesharing app Lyft (LYFT -0.64%) are tumbling 10.3% at 11:32 a.m. ET Tuesday morning after the U.S. Department of Labor issued proposed new rules that would force gig economy companies to classify their drivers as employees.

Lyft, Uber Technologies, and DoorDash have been living under the threat of potential federal action for well over a year. After California voters rejected saddling gig economy players with the burdensome regulation in 2020, the Biden administration indicated it would explore imposing the rule nationwide.

A California judge, however, overturned the state ballot initiative in 2021.

Driver talking to client.

Image source: Getty Images.

So what

The proposed Labor Dept. regulations would require Lyft and others to classify independent contractors as employees entitled to all the benefits extended to regular company employees. 

While ridesharing companies are the most visible target of such rule changes, the impact would be greater and more far-reaching across the economy. Hundreds of professions, trades, and industries including those in food and grocery delivery, publishers and newsrooms, trucking companies, and more would have to reclassify their relationship.

It's estimated that as much as 36% of the U.S. workforce is considered an independent contractor, or the equivalent of 58 million workers.

Now what

When California had considered requiring gig economy companies to reclassify their drivers, the libertarian Competitive Enterprise Institute think tank estimated fares could soar as high as 50% as the costs Lyft and others would face would rocket some 67% higher. Lyft, which at the time generated 14% of its revenue from California, faced some $260 million in higher expenses.

Shares of Uber were down 7.7% while DoorDash stock was off 6.1%.