Investors in Uber and other gig companies could be hoping for a Trump win in November. Here's why.

By Victor Reklaitis

Biden's policies are seen as much more friendly to gig workers, and his re-election could offer a fresh challenge for companies like Lyft and DoorDash

While Joe Biden and Donald Trump have similar stances toward some companies, such as buyout target U.S. Steel Corp. (X) or China's electric-vehicle makers, the two rivals in the White House race have differed quite a bit in their approaches to gig-economy companies.

Near the end of Trump's presidential term, his Labor Department issued a regulation for determining whether a worker is an employee or an independent contractor that was widely viewed as favorable to companies like Uber Technologies Inc. (UBER), Lyft Inc. (LYFT) and DoorDash Inc. (DASH).

Biden's Labor Department then moved quickly to block the regulation, which would have made it more difficult for a gig worker such as an Uber driver to be counted as an employee entitled to minimum wages and benefits.

The Labor Department also enacted a rule earlier this year that directs employers to consider six criteria for determining whether a worker is an employee or a contractor, in a change from the Trump-era rule that prioritized two criteria.

"The Biden administration has been much more labor friendly," said Andrew Lokay, a senior research analyst at Beacon Policy Advisors. Biden's new rule aims to "make it more challenging to classify workers as independent contractors," he said.

While Uber, Lyft and other app-based platforms have said the new rule should not force them to reclassify their drivers, Lokay said lawsuits from business groups targeting the regulation show that it's still significant. "If it didn't stand to have meaningful impacts, we wouldn't be seeing the business community trying to fight it so much," he said.

Concerns about the Biden administration's gig-work regulations have weighed on gig-economy stocks, with selloffs in 2021 and 2022 blamed on his Labor Department's moves.

In a second Biden term, the Labor Department could sue "any of the gig companies for misclassifying at least some of their workers as independent contractors," TD Cowen analysts said in a recent note. That type of lawsuit could even come before the November presidential election, but it would be "politically risky, in our view, given most Americans like these services," the analysts added.

Some of the risk for gig companies in a second Biden term would be determined by the official who serves as the head of his Labor Department, according to the TD Cowen team. "Current Acting Secretary Julie Su - who is very pro-worker, anti-gig company - likely won't get the job as she can't win confirmation even in a Democrat-controlled Senate," the analysts wrote.

Related: Biden re-nominates Julie Su for labor secretary after Senate declined to confirm her for 10 months

A Trump win in November would "dramatically reduce" the potential risks that gig companies face from the federal government's actions, according to the TD Cowen analysts. They said a Trump Labor Department would be likely to re-adopt its gig-worker rule from four years ago, steer clear of suing gig companies and withdraw any Biden-era lawsuits that might hit those companies in the following months.

But a GOP victory in the White House race wouldn't be an all-clear signal for gig companies, according to Beacon's Lokay. "I expect the movement for regulation of the gig economy, whether that's rideshare companies or app-based food-delivery services, to continue in states like Massachusetts or California," he said.

The Massachusetts Supreme Judicial Court is weighing whether to give the green light to two different ballot initiatives focused on gig workers, and a separate case in the state centers on whether Uber and Lyft unlawfully classified drivers as contractors. In California, the state's top court has yet to decide the fate of a ballot initiative that got 59% support and would allow gig companies to treat their drivers as contractors.

See: California Supreme Court agrees to hear Prop. 22 appeal after ruling favoring Uber, Lyft

In addition, Uber and Lyft are threatening to stop operating in Minnesota, where they object to new rideshare regulations. "The bigger risk to gig companies with regulation in a state like Minnesota is not necessarily the loss of access to the Minnesota market, if they choose to suspend services there," Lokay told MarketWatch. "It's the potential for other blue states to follow the lead, so regulation in one state could provide a model for lawmakers in other states to follow."

Now read: Why Uber's stock is having a bumpy ride after earnings

And see: Lyft's shares gain after ride-hailing service posts earnings

-Victor Reklaitis

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05-09-24 0822ET

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