Watch Now

Food delivery apps face EU crackdown: Are US companies next?

Similar movement gaining traction this side of the Atlantic

Companies like Uber, Lyft and DoorDash could feel the heat in the U.S. when EU lawmakers rule on gig worker classification this week (Photo: Norma Mortensen/Pexels)

Third-party food delivery companies in Europe aren’t doing so hot. The European Commission, the executive branch of the EU, is scheduled to meet this week to propose what speculators believe will be stricter labor rules to regulate the gig economy in the region.

Specifically, ​​reports suggest that the commission will require gig companies to directly employ their couriers, rather than classify them as independent contractors. On the heels of that news, investors have soured on food delivery apps, which many believe will be impacted greatly by the anticipated proposal.

Shares of Deliveroo (OCTUS: DROOF) were down more than 6% in trading on Monday, while shares of Just Eat Takeaway (NASDAQ: GRUB) –– the owner of Grubhub and several European food delivery platforms –– and Delivery Hero (OCTUS: DELHY) were down 5.5% and 4.5%, respectively. All three stocks suffered double-digit losses during the week prior.

“The thorny question of whether or not delivery drivers are employees is about to be answered by the EU Commission later this week,” said Danni Hewson, a financial analyst at AJ Bell, “and reports suggest the answer will be yes.”

The upcoming meeting is just the latest move from EU lawmakers hoping to grant employee status to gig economy workers.

In March, the Spanish government became the first EU country to announce legislation that would give gig workers greater employment rights when it made plans to enact the “rider law.” That provision, which is not yet in effect, will legislate that any worker is presumed to be an employee rather than an independent contractor, effectively turning gig workers into full-time employees. Shortly after it was announced, Deliveroo pulled out of Spain entirely, citing the law as a reason.

Meanwhile, in the United Kingdom, the U.K. Supreme Court in February made a benchmark ruling that Uber (NYSE: UBER) drivers must be classified as employees rather than independent contractors, spurring the company to do just that. And just this past weekend, Uber lost another high-profile U.K. court case which ruled that it and other ride-hailing companies, not individual drivers, will enter directly into contracts with passengers and assume liability for their services.

A similar movement is picking up steam in the U.S. –– strikes and protests have roiled the country’s gig economy for years, and now legislators are starting to listen.

In August, a California county court ruled that the state’s Proposition 22, which exempted ride-share companies from the ABC employee classification system set out by AB5, was unconstitutional. Now, those companies will have a significantly more difficult time classifying workers as independent contractors rather than employees.

On the other side of the country, lawmakers in Massachusetts are considering a bill, H.1234, which would create a third classification for gig workers somewhere between employee and independent contractor. Under the proposed law, gig workers would maintain the flexibility of independent contractors while receiving some of the benefits of full-time employees. A similar classification exists in some EU countries and Canada, where it’s been termed “dependent contractor” status.

Read: Uber, Lyft and others face a reckoning

Read: DoorDash and Instacart go head-to-head on ultrafast grocery delivery

That third classification could be on the horizon if food delivery companies’ actions are any indication. Gig companies, including Uber and Lyft (NASDAQ: LYFT), are part of the group that’s pushing hard for the Massachusetts bill, suggesting that they see it as a more attractive alternative to giving their workers full employment status.

But that backing also reveals some potential fears about the current legislative climate around the gig economy. Given that Uber, Lyft, DoorDash (NYSE: DASH), and Instacart spent a combined $200 million on the passage of Prop 22, which would have limited benefits for their workers, the fact that the companies are now pouring money into a bill that would grant some protections for their workers is telling.

In the past, the companies showed a willingness to spend millions of dollars to deny the very protections they’re now pushing for in Massachusetts. That implies that they may have some legitimate fears about a decision like the one expected in the European Commission this week occurring in the U.S. and are attempting a compromise.

In particular, the companies might have fears that other states will adopt bills similar to California’s AB5, which Uber, Lyft and other ride-hailing companies challenged unsuccessfully with Prop 22.

“This ruling ignores the will of the overwhelming majority of California voters and defies both logic and the law,” said Uber spokesperson Noah Edwardsen after Prop 22 was overturned. “We will appeal and we expect to win.”

So far, they haven’t, and that could be stoking fears that other states will follow a similar path to granting employee status to their drivers.

Adding to the case that U.S. food delivery apps are wary of other AB5-like decisions is the fact that DoorDash, which recently expanded into Europe with the acquisition of Wolt and also suffered double-digit losses last week, is now offering some of its workers full-time employment and benefits for its new ultrafast delivery service. While the service will only employ a handful of employees, it’s a big deal for DoorDash, as it marks the first time the company has broken its own worker classification rules and granted its couriers employee status.

If the U.S. were to enact a law mandating that gig workers be classified as employees, it could also have an impact on costs for the consumer. Unsurprisingly, it costs more to have a full-time employee than an independent contractor, and food delivery platforms could offset those losses by raising prices.

If they don’t, they may end up doing something similar to Deliveroo, which yanked its operations in Spain in part because worker classification laws in the country made it more difficult for the company to turn a profit. U.S. companies could do something similar, pulling out of states or regions where the cost of employment is particularly high, although that hasn’t yet happened in the case of California, where AB5 is again in play.

You may also like:

Uber Eats partners with Hims & Hers, will deliver in 12 markets

DoorDash has an automation arm: DoorDash Labs

DoorDash adds flexible fulfillment, partners with Dollar General

Jack Daleo

Jack is a staff writer for FreightWaves and Modern Shipper covering topics like last mile delivery and e-commerce fulfillment. He studied at Northwestern University, majoring in journalism with a certificate in integrated marketing communications. Previously, Jack has written for Backpacker Magazine and enjoys travel, the outdoors, and all things basketball.