Lyft falls nearly 10%, DoorDash drops 7.6%, Uber down more than 6% after initial statements from official suggest harder line on treatment of gig workers as independent contractors

U.S. Labor Secretary Marty Walsh says most gig workers should be employees, not independent contractors.

Shares of Uber Technologies Inc., Lyft Inc. and other “gig-work” companies dropped sharply Thursday after U.S. Labor Secretary Marty Walsh said gig workers should be classified as employees.

“We are looking at it but in a lot of cases gig workers should be classified as employees,” Walsh told Reuters in an interview. “These companies are making profits and revenue and I’m not (going to) begrudge anyone for that because that’s what we are about in America… but we also want to make sure that success trickles down to the worker.”

Those appear to be the first public comments by Walsh on gig-worker classification — an increasingly important issue that has broad implications for the future of work and what have become some of the nation’s most well-known companies.

Uber UBER , Lyft LYFT , DoorDash DASH , Instacart and Grubhub GRUB treat their drivers and delivery workers as independent contractors who do not have the same pay, rights and benefits as employees. The companies have long fought to preserve their business models.

Shares of Uber closed 6% lower Thursday, while Lyft stock dropped 9.9% and DoorDash shares decreased 7.6%. Grubhub shares fell 4.2%; that food-delivery company has agreed to be acquired by European delivery company Just Eat Takeaway.com TKWY , which fell 2% in overseas trading Thursday.

Tom White, analyst for D.A. Davidson, called Walsh’s comments “another sign that the gig companies are more likely to see upward pressure/risk related to driver-related costs.”

Meanwhile, Piper Sandler analysts said this could be a buying opportunity for Lyft investors as the ride-hailing industry recovers. They also said “Labor costs will probably rise no matter what, and a federal rule is better than a patchwork of state-level laws.”

A couple of gig companies were quick to say Thursday that their workers say they prefer the flexibility that gig work provides.

“We’ve put forward proposals that would add new benefits and protections to independent work, and we stand ready to work with the Administration, state legislatures and the people who work on our platform to make this a reality,” an Uber spokesman said.

DoorDash workers “work just four hours per week on average, and that’s exactly why we’re committed to protecting their independence while providing greater security and benefits,” said Elizabeth Jarvis-Shean, a spokeswoman at DoorDash.

Cherri Murphy, an organizer with Bay Area-based Gig Workers Rising, said Thursday that “It’s refreshing to have a Department of Labor that does not turn a blind eye to the plight of gig workers. Misclassification of gig workers is rampant and the pandemic has exacerbated inequality for app-based workers.” She called employee classification an “important first step to critical reform we need.”

In California, gig companies banded together and spent more than $200 million to fight a law that would have required them to classify their workers as employees, putting an initiative on the November ballot that was passed by 58% of the state’s voters.

Walsh, a former union leader, is expected to bring more teeth to U.S. labor laws under President Joe Biden’s administration. Biden himself said during his presidential campaign that he would “put a stop to employers intentionally misclassifying their employees as independent contractors.”

Gig workers’ classification became even more of a flashpoint in the past year, as the coronavirus pandemic wiped out demand for ride-hailing for months. Gig companies do not pay into states’ unemployment-insurance systems, and drivers were able to collect unemployment benefits only under the federal pandemic unemployment assistance program.

Walsh, who said his department would be talking with gig companies about worker pay and benefits, told Reuters: “If the federal government didn’t cover the gig economy workers, those workers would not only have lost their job, but they wouldn’t have had any unemployment benefits to keep their family moving forward… we’d have a lot more difficult situation all across the country.”