We've been following the developments on worker misclassification in the sharing economy pretty closely in recent months. As a follow up to our post in June, below are updates on a few companies that have recently made headlines.
On July 17th, Homejoy sent shockwaves through the sharing economy when it announced its closure effective July 31st. CEO Adora Cheung is quoted in re/code as citing the four independent classification lawsuits against Homejoy as the “deciding factor” behind the shutdown.
Uber continues to be headline news for its steadfast adherence to the 1099 independent contractor business model it employs both in the U.S. and abroad. Recently Uber challenged the class certification of its drivers in the case of O'Connor et al vs. Uber Technologies Inc. On June 17th, the California Labor Department ruled that an Uber driver, Barbara Ann Berwick, should be classified as an employee and entitled to reimbursement of expenses, and it is anticipated Uber will appeal.
Other sharing economy companies, however, are carefully examining the use of independent contractors and have made a conscious decision not to follow the 1099 business models of Uber and Homejoy. Zirtual proudly announced on April 30th that it has reached a growth level of 400 employees*. On June 22nd, Instacart announced it will reclassify some of its contractor workers to employee status. House cleaning startups Managed by Q, and MyClean also use the employee model for their workforce. Shyp, a San Francisco start up that provides on demand pick up and shipping of packages, also announced they want a long term relationship with their couriers and will classify them as employees.
With the exception of a brief mention in Hillary Clinton’s first major policy speech on the economy and Jeb Bush’s showy catching of an Uber ride at a recent San Francisco campaign stop, the misclassification issue is generally missing in action from the presidential campaign discourse. Although both parties agree that the services provided by independent contractors are important and contribute billions to the U.S. economy, Congress has failed to provide clear guidelines that offer a fair and reasonable balance between worker protections and economic growth. Senator Mark Warner (D.Va.) , himself a former business executive, observed in a June 18th Washington Post op-ed: “[W]hile litigation is underway about whether on-demand workers are independent contractors or employees, this question is too important to leave to the courts alone. As policymakers, we should begin discussing whether our 20th-century definitions work in a 21st-century economy.”
What does this mean?
The rising number of lawsuits and claims due to worker misclassification indicate there is an urgent and dire need for a re-examination of our current patchwork of federal and state laws.
Our policymakers have two clear choices:
- Do nothing and continue to burden labor and business with the current tax and labor codes that generate lawsuits, loss of tax revenue, and stifle economic growth, or
- Demonstrate true leadership by coming together to propose creative solutions that balance the need for worker protections with entrepreneurial opportunities for all forms of businesses.
In the meantime, businesses (particularly startups) must not ignore the importance of getting expert advice and correctly classifying workers before the auditor knocks or the lawsuit is filed.
*Update August 17, 2015: Zirtual has been acquired by Startups.co and has resumed operations. The New York based law firm of Outten & Golden has filed a suit in the U.S. District Court for the District of Delaware under the Worker Adjustment and Retraining Act (the WARN Act). The suit alleges Zirtual is in violation of the Act for not providing employees with adequate advance notice