Is the Uber, Lyft and gig economy battle over workers nearing its end game?
The Uber app application with a map of New York City is seen on an Apple iPhone mobile phone in this photo illustration Warsaw, Poland on 21 September, 2022.
Nurphoto | Nurphoto | Getty Images
In some ways, Uber and Lyft are back to square one.
With federal regulators set to tighten Trump-era labor standards that let Uber and Lyft, as well as food-delivery services like Doordash, treat gig workers as independent contractors with few protections under labor law, shares dropped sharply last week. But while a shift, the Department of Labor proposal doesn’t immediately transform gig workers into employees entitled to overtime pay, unemployment insurance and other benefits.
What’s clear is that the ongoing conflict over how these on-demand companies treat their drivers isn’t going away, since an estimated one in six Americans has worked in the gig economy in one way or another. Analysts and pundits following the rideshare industry think the future holds some series of compromises that will give drivers at least limited benefits — a model known as independent contractor-plus — with some believing that the Biden administration’s pro-union stance will lead to workers being classified as employees eventually.
Both solutions would be likely to raise Uber and Lyft’s costs — and create a different business model for the entrepreneurs using their cars to run, in effect, small businesses of their own. And each highlights the unrealized promise of ridesharing business models: The absence of self-driving cars that investors once believed would make profits at the companies soar and put most drivers out of business.
“It seems like the start of a Game of Thrones battle between the Department of Labor and the gig economy,’ Wedbush analyst Dan Ives said. “When pressure was confined to the states, it was one thing. It has added another variable.”
For now, the rules proposed by the DOL won’t make drivers into employees, who would also be entitled to benefits such as minimum-wage protection, overtime pay, and to be paid when they are at work but don’t have a passenger in their car. Such a move would likely also cause pressure on the companies to offer the drivers health insurance and vacation pay, especially for the minority of drivers who do gig work full-time, though Morgan Stanley analyst Brian Nowak said state-level litigation could also force such change.
For now, the DoL rules will apply a broader series of tests to determine who is a truly independent contractor and who’s not. The companies point to the flexibility of rideshare employment, which lets drivers set their own hours, as a sign that drivers are independent contractors. Advocates for drivers being treated as employees argue that Uber and Lyft set workers’ pay, dispatch them to trips, and monitor their work as closely as they would an employee’s, even using technology to ask passengers in mid-ride whether their driver is acting erratically based on a vehicle’s speed.
The shift in federal policy, largely restoring the status quo under the Obama administration (and most of the Trump years, since the last administration didn’t loosen the rules until early 2021), comes at a delicate time for both rideshare companies.
Each has been promising Wall Street that it will soon turn profitable. By some standards — especially the more lenient earnings before interest taxes, depreciation and amortization — they have gotten there. But neither makes money under formal accounting standards, and neither has had positive free cash flow over the last 12 months, though Uber was positive in the second quarter.
Both businesses were hammered by the Covid pandemic, which made both drivers and passengers use car services much less often. Each company lost more than half of its value in 2020, recovered to new highs by last year, and has seen shares pounded anew in 2022.
And that pain has been passed along to drivers, who have seen their pay cut since before the pandemic, said Nicole Moore, president of Rideshare Drivers United in Los Angeles and a rideshare driver herself.
“They got America hooked on cheap rides, and drivers hooked on what they got paid,” Moore said. “Now passengers are paying more, and drivers are getting paid less.”
Uber believes the Department of Labor is focused less on ridesharing and more on industries such as construction that also use gig workers, pointing out that the proposed rule doesn’t single out rideshare drivers.
“The Department of Labor listened to drivers, who consistently and overwhelmingly state that they prefer the unique flexibility that comes with being an independent contractor,” Uber head of federal affairs CR Wooters said in a statement. “Today’s proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially.”
The company also disputes Moore’s claims. It says driver pay has risen, reaching $37 per what Uber calls a utilized hour. The company’s 10-Q filing doesn’t disclose an average utilization rate – or percentage of hours a car is carrying passengers while a driver is on the clock – but Sergio Avedian, senior contributor at industry blog The Rideshare Guy, said it’s about 60%. Uber drivers also supply their own cars and gasoline, though the company in March added a per-trip fuel surcharge that goes directly to drivers.
Uber and Amazon Flex drivers protest the fuel price serge and demand more money outside an Amazon warehouse in Redondo Beach, California, March 16, 2022.
Mike Blake | Reuters
The risk of change in the legal environment is pushing the companies toward a new kind of business model, similar to what has happened in Washington State already under a new law, said Avedian, who is a driver for both Uber and Lyft himself.
In Washington, drivers are still considered contractors, but Seattle drivers are guaranteed $1.65 a mile, which he said is more than double the prevailing rate in California, effective next Jan. 1. (Rates will be lower elsewhere in Washington). They also will get worker’s compensation insurance, paid time off and a right to appeal if they are effectively terminated by the companies.
“The only reason to be involved in the gig economy is the flexibility,” Avedian said, referring to policies that let rideshare drivers set their own hours. “Uber’s not going to do that and give you employment rights. If you put [health insurance, Social Security taxes and other benefits] in, Uber will go to zero.”
New Jersey, New York and Massachusetts are working with the companies on deals similar to the one reached in Washington, Nowak said. Uber and Lyft have coped with new requirements in Washington with little impact and would be able to weather any hit to profits as the model spreads, he wrote.
“Reaching an agreement in those states was important 24 hours ago (before this announcement), and it still is today,” Nowak said in relation to the DoL rule proposal.
Both companies said they are willing to work on such deals with state regulators, exchanging better pay for continuing the flexibility that independent contracting allows the companies. “It’s incumbent on us to make it appealing to drivers, because they have lots of options,” said Uber spokeswoman Alix Anfang, referencing the tight labor market.
Surveys by The Rideshare Guy also show that most drivers prefer to be independent contractors.
Any increase in expenses from classifying drivers as employees, or otherwise raising their pay, is likely to be recovered in the form of higher prices because the companies have already cut their fixed expenses hard, said CFRA Research analyst Angelo Zino. How much costs may rise isn’t known, but the range of possibilities runs from 10 percent to 30 percent, he said. Uber is also pursuing advertising revenue, which may produce as much as 20 percent of the company’s profit before interest, taxes and non-cash expenses within three years, he said.
The need to prevent drivers from claiming full employment benefits, if regulators ever do classify them as employees, is likely to mean the companies pressure drivers to work less than full time, Moore said. Companies like Amazon that also use quasi-independent drivers may face some of the same issues as Uber and Lyft, Nowak said.
All of this would matter less if the companies were closer to implementing self-driving vehicles on a large scale, which would have let them reduce the cost of drivers. Uber’s federal disclosures ahead of its 2019 IPO predicted the company would become a hybrid of automated and human-driven transportation, and Lyft’s filings said self-driving cars would “be a critical part of the future of transportation.”
Last week, Lyft president John Zimmer, who had previously predicted majority self-driving by 2021, said he got it wrong, but he added, “I really think in the next two to three years that kind of actual no driver, driverless vehicle will be something you can order pretty easily on the Lyft platform.”
Gig workers are likely to remain on the scene, and their business models will change, Avedian said. The question is whether they will change fast enough for drivers and regulators.
“If it’s enforced, we will have status, benefits and pay that is guaranteed to employees under the law,” Moore said. “99 percent of drivers want to be independent — but we’re not.”
Join us October 25 – 26, 2022 for the CNBC Work Summit — Dislocation, Negotiation, and Determination: The World of Work Right Now. Visit CNBC Events to register.
Microsoft CEO Satya Nadella speaks at the Axel Springer building in Berlin on Oct. 17, 2023. He received the annual Axel Springer Award.
Ben Kriemann | Getty Images
Among the thousands of Microsoft employees who lost their jobs in the cutbacks announced this week were 830 staffers in the company’s home state of Washington.
Nearly a dozen game design workers in the state were part of the layoffs, along with three audio designers, two mechanical engineers, one optical engineer and one lab technician, according to a document Microsoft submitted to Washington employment officials.
There were also five individual contributors and one manager at the Microsoft Research division in the cuts, as well as 10 lawyers and six hardware engineers, the document shows.
Microsoft announced plans on Wednesday to eliminate 9,000 jobs, as part of an effort to eliminate redundancy and to encourage employees to focus on more meaningful work by adopting new technologies, a person familiar with the matter told CNBC. The person asked not to be named while discussing private matters.
Scores of Microsoft salespeople and video game developers have since come forward on social media to announce their departure. In April, Microsoft said revenue from Xbox content and services grew 8%, trailing overall growth of 13%.
In sales, the company parted ways with 16 customer success account management staff members based in Washington, 28 in sales strategy enablement and another five in sales compensation. One Washington-based government affairs worker was also laid off.
Microsoft eliminated 17 jobs in cloud solution architecture in the state, according to the document. The company’s fastest revenue growth comes from Azure and other cloud services that customers buy based on usage.
CEO Satya Nadella has not publicly commented on the layoffs, and Microsoft didn’t immediately provide a comment about the cuts in Washington. On a conference call with analysts in April, Microsoft CFO Amy Hood said the company had a “focus on cost efficiencies” during the March quarter.
WATCH: Microsoft layoffs not performance-based, largely targeting middle managers
Technology
IPO market gets boost from Circle’s 500% surge, sparking optimism that drought may be ending
Jeremy Allaire, CEO and co-founder of Circle Internet Group, the issuer of one of the world’s biggest stablecoins, and Circle Internet Group co-founder Sean Neville react as they ring the opening bell, on the day of the company’s IPO, in New York City, U.S., June 5, 2025.
NYSE
For over three years, venture capital firms have been waiting for this moment.
Tech IPOs came to a virtual standstill in early 2022 due to soaring inflation and rising interest rates, while big acquisitions were mostly off the table as increased regulatory scrutiny in the U.S. and Europe turned away potential buyers.
Though it’s too soon to say those days are entirely in the past, the first half of 2025 showed signs of momentum, with June in particular producing much-needed returns for Silicon Valley’s startup financiers. In all, there were five tech IPOs last month, accelerating from a monthly average of two since January, according to data from CB Insights.
Highlighting that group was crypto company Circle, which more than doubled in its New York Stock Exchange debut on June 5, and is now up sixfold from its IPO price for a market cap of $42 billion. The stock got a big boost in mid-June after the Senate passed the GENIUS Act, which would establish a federal framework for U.S. dollar-pegged stablecoins.
Venture firms General Catalyst, Breyer Capital and Accel now own a combined $8 billion worth of Circle stock even after selling a fraction of their holdings in the offering. Silicon Valley stalwarts Greylock, Kleiner Perkins and Sequoia Capital are set to soon profit from Figma’s IPO, after the design software vendor filed its public prospectus on Tuesday. Since its $20 billion acquisition agreement with Adobe was scrapped in late 2023, Figma has been one of the most hotly anticipated IPOs in startup land.
It’s “refreshing and something that we’ve been waiting for for a long time,” said Eric Hippeau, managing partner at early-stage venture firm Lerer Hippeau, regarding the exit environment. “I’m not sure that we are confident that this can be a sustained trend yet, but it’s been very encouraging.”
Another positive sign for the industry the past couple months was the performance of artificial infrastructure provider CoreWeave, which went public in late March. The stock was relatively stagnant for its first month on the market but shot up 170% in May and another 47% in June.
For venture firms, long considered the lifeblood of risky tech startups, IPOs are essential in order to generate profits for the university endowments, foundations and pension funds that allocate a portion of their capital to the asset class. Without handsome returns, there’s little incentive for limited partners to put money into future funds.
After a record year in 2021, which saw 155 U.S. venture-backed IPOs raise $60.4 billion, according to data from University of Florida finance professor Jay Ritter, every year since has been relatively dismal. There were 13 such offerings in 2022, followed by 18 in 2023 and 30 last year, collectively raising $13.3 billion, Ritter’s data shows.
The slowdown followed the Federal Reserve’s aggressive rate-hiking campaign in 2022, meant to slow crippling inflation. As the lower-growth environment extended into years two and three, venture firms faced increasing pressure to return cash to investors.
‘Backlog of liquidity’
In its 2024 yearbook, the National Venture Capital Association said that even with a 34% increase in U.S. VC exit value last year to $98 billion, that number is 87% below the 2021 peak and less than half the average for the four years from 2017 through 2020. It’s a troubling dynamic for the 58,000 venture-backed companies that have raised a total of $947 billion from investors, according to the annual report, which is produced by the NVCA and PitchBook.
“This backlog of liquidity drought risks creating a ‘zombie company’ cohort — businesses generating operational cash flow but lacking credible exit prospects,” the report said.
Other than Circle, the latest crop of IPOs mostly consists of smaller and lesser-known brands. Health-tech companies Hinge Health and Omada Health are valued at about $3.5 billion and $1 billion, respectively. Etoro, an online trading platform, has a market cap of just over $5 billion. Online banking provider Chime Financial has a higher profile due largely to a years-long marketing blitz and is valued at close to $11.5 billion.
Meanwhile, the highest valued private companies like SpaceX, Stripe and Databricks remain on the sidelines, and AI highfliers OpenAI and Anthropic continue to raise massive amounts of cash with no intention of going public anytime soon.
Still, venture capitalists told CNBC that there are plenty of companies with the financial metrics to be public, and that more of them are readying for the process.
“The IPO market is starting to open and the VC world is cautiously optimistic,” said Rick Heitzmann, a partner at venture firm FirstMark in New York. “We are preparing companies for the next wave of public offerings.”
There are other ways to make money in the meantime. Secondary sales, a process that involves selling private shares to new investors, are on the rise, allowing early employees and investors to get some liquidity.
And then there’s what Mark Zuckerberg is doing, as he tries to position his company at the center of AI innovation and development.
Mark Zuckerberg, chief executive officer of Meta Platforms Inc., during the Meta Connect event on Wednesday, Sept. 25, 2024.
Bloomberg | Bloomberg | Getty Images
Last month, Meta announced a $14 billion bet on Scale AI, taking a 49% stake in the AI startup in exchange for poaching founder Alexandr Wang and a small group of his top engineers. The deal effectively bought out half of the stock owned by investors, leaving them with the opportunity to make money on the rest of their holdings, should a future acquisition or IPO take place.
The deal is a big win for Accel, which led Scale AI’s Series A round in 2017, and is poised to earn more than $2.5 billion in the transaction. Index Ventures led the Series B in 2018, and Peter Thiel’s Founders Fund led the Series C the following year at a valuation of over $1 billion.
Investors now hope the Federal Reserve will move toward a rate-cutting campaign, though the central bank hasn’t committed to one. There’s also ongoing optimism that regulators will make going public less burdensome. Last week, Reuters reported, citing sources familiar with the matter, that U.S. stock exchanges and the SEC have discussed loosening regulations to make IPOs more enticing.
Mike Bellin, who heads consulting firm PwC’s U.S. IPO practice, said he anticipates a diversity of IPOs across sectors in the second half of the year. According to data from PwC, pharma and fintech were among the most active sectors for deals through the end of May.
While the recent trend in IPO activity is an encouraging sign for investors, potential roadblocks remain.
Tariffs and geopolitical uncertainty delayed IPO plans from companies including Klarna and StubHub in April. Neither has provided an update on when they plan to debut.
FirstMark’s Heitzmann said the path forward is “not at all clear,” adding that he wants to see a strong quarter of economic stability and growth before confidently saying that the market is wide open.
Additionally, other than CoreWeave and Circle, recent tech IPOs haven’t had big pops. Hinge Health, Chime and eToro have seen relatively modest gains from their offer price, while Omada Health is down.
But virtually any activity beats what VCs were experiencing the last few years. Overall, Hippeau said recent IPO trends are generally encouraging.
“There’s starting to be kind of light at the end of the tunnel,” Hippeau said.
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