Just Eat And Deliveroo Under Threat From EU Labour Regulation

Shares in Just Eat Takeaway.com NV (LON: JET) and Deliveroo PLC (LON: ROO) slumped by 4% (for Just Eat) and 6% (for Deliveroo) yesterday and have recovered their losses today. That’s a lot of volatility in such large stocks. Volatility being, of course, the traders’ opportunity.

For Deliveroo there is the larger issue – which has accompanied a near 20% fall in the share price in the past week – of stock options being cashed in and stakes being reduced. However, the risk that became apparent yesterday for both stocks is possible changes in European Union labour law.

As we know both are gig economy stocks. The workforce is largely self-employed and gains a simple fee for work done. Those doing that work gain little to no access to holiday pay, pensions contributions, sick pay, and all the rest. There are those who would prefer that such gig economy work simply did not exist. Those who are working should be employees, gaining all the usual employment protections.  

The gig economy model of gaining labour doesn’t really work under such rules. Or, perhaps, will be much more expensive if it does. So, the imposition of such rules upon the Deliveroo and Just Eat labour practices would be seen as detrimental to the share prices of both companies. 

Which is exactly what the worry was. Information came out of Brussels indicating that the upcoming European Union rules on gig workers will be a lot more restrictive than the current ones. Most if those currently working as gig workers would be classified as workers or even employees. Workers gain access to some employment protections and employer costs, employees to more. That would raise costs for both companies. Possibly, some fear, to the level that the business models do not work.

The thought that the EU could not make a business model illegal is not comforting, governments have done such things. Spain changed the copyright rules on news search engines and Google simply closed Google News in that country. Deliveroo has left that same market coincident with changes in gig worker regulations although it said it was about increased competition.

There is a real legal risk for the delivery companies like Deliveroo and Just Eat. Their share prices will reflect estimations of that risk. As sentiment swings toward such EU regulation being more likely we could see further weakness in prices. As the idea that surely the EU wouldn’t outlaw an entire business structure prevails then strengthening.

It will be weeks and perhaps months before firm intentions about the new law-making become apparent. It’s going to be rumours and even thoughts about rumours which will drive this section of the stock prices for delivery companies and other gig employee companies like Deliveroo and Just Eat. 

Such significant – 5% and 6% in a day – share price moves, such as those at Deliveroo and Just Eat these past two days, provide an opportunity for trades. They are large and relatively liquid stocks. The big question is which way is sentiment going to go on any particular day?

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