What happened

Shares of Uber Technologies (UBER -0.32%) were down 9%, as of 11:06 a.m. ET on Tuesday. Ridesharing companies could be facing a potential headwind from the U.S. Department of Labor's proposal to treat certain contract workers as company employees. This would entitle independent contractors to benefits and legal protections. 

Uber's stock is down 47% over the last year. One thing to blame is mounting losses of $10 billion, so this news just adds fuels to the flames of Uber's profitability issues. However, the market might be overlooking Uber's efforts in the U.K., which could make the ridesharing provider more competitive.

So what

The dilemma over how to treat independent workers has gotten more attention since the pandemic began. It's estimated that nearly 60 million people did at least some work as freelancers in 2021. Uber and rival Lyft could face higher costs if the proposal becomes law. It's the uncertainty of what happens to Uber's cost structure and profitability under the new proposal that investors are concerned about.

Uber offers what it calls an independent contractor-plus (IC+) model, which gives drivers additional benefits. During the company's second-quarter earnings call, Uber CEO Dara Khosrowshahi explained that drivers want the "flexibility of independent contractor status along with benefits, as well." In 2021, Uber reclassified 70,000 drivers in the U.K. as workers, so the company was already headed in the direction in which legislation seems to be moving. 

Now what

Management doesn't seem phased by these developments. It believes the regulatory and competitive situation is headed in the right direction. Khosrowshahi even mentioned on the second-quarter call that its margins in the U.K. are "solidly profitable," despite stepping up efforts to designate drivers as workers. 

Ultimately, this news won't impact Uber's long-term growth. If anything, Uber's efforts to get ahead of regulation will make it more competitive against other ridesharing services that aren't offering the same benefits.