In the continuing saga of worker misclassification in the on-demand economy, several more California-based startups were named in class-action lawsuits last week.
With help from the same lawyer, Shannon Liss-Riordan, who is also targeting Uber for independent contractor misclassification, workers from food delivery companies DoorDash, Caviar (which is owned by Square), and GrubHub have sued their employers. The workers argue they have been misclassified as independent contractors when they should be considered employees. In addition to these new targets, Liss-Riordan is pursuing similar claims against Uber, Lyft, Instacart, Postmates, Shyp, and Washio.
The primary argument in all these cases is whether the drivers engaged by these firms should be classified as traditional employees, where companies withhold taxes and pay for benefits, versus independent contractors. While independent contractor classification is a more flexible solution for the companies, it does not offer any worker benefits or protections like overtime pay, unemployment, or reimbursement of expenses. For example, drivers who are classified as independent contractors must pay for gas, insurance, parking fees and phone data, which would be illegal under California law if they were classified as employees.
Many startups in the on-demand economy, including industry heavyweights like Uber, have built their business models based on an independent contractor workforce. If this model is threatened it could have a dramatic impact on their on-going viability. In recent months we have begun to see companies choose one of three major strategic directions:
- Fight: Uber is clearly digging in for battle to preserve its business model.
- Quit: Cleaning startup Homejoy chose to shut down amid many lawsuits surrounding the classification of its employees.
- Concede: Startups like Sprig, Shyp, Instacart and Munchery have decided to avoid the fight by proactively re-classifying their delivery drivers and other workers as part- and/or full-time employees instead of independent contractors.
The TalentWave independent contractor compliance team continues to actively monitor these developments as they will very likely influence the broader regulatory and civil litigation environments that impact our enterprise clients who engage flexible workers.