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Do Lawsuits in California and Massachusetts Threaten the Gig Economy as We Know It? | Ballard Spahr LLP

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The COVID-19 pandemic has underscored the important role that gig workers play in our economy. At the same time, it also has highlighted the working conditions of gig workers, spurring several states to take action on their behalf.

Attorneys General in California and Massachusetts as well as the California Labor Commissioner have filed suit against rideshare companies Uber and Lyft, alleging the companies misclassify drivers as independent contractors instead of employees. Just yesterday (August 10, 2020), a judge in California issued a preliminary injunction in one of those cases, finding that Uber and Lyft must convert their drivers from independent contractors to employees. If the claims ultimately are successful, and gig economy businesses such as Uber and Lyft are forced to permanently make their workers employees, it could create a significant shift in the gig economy business model as we know it.

The first of these suits came May 5, 2020, when the California Attorney General sued Uber and Lyft, alleging that both companies are misclassifying their drivers as independent contractors instead of employees. In doing so, Uber and Lyft deprive their drivers of minimum wage, overtime, rest breaks, paid sick leave, expense reimbursements, workers compensation, unemployment insurance, and paid family leave that would be available to an employee. The California Attorney General seeks an injunction and restitution for unpaid wages, meal and rest break premiums, unpaid sick leave, taxes, and other penalties.

On August 10, 2020, Judge Ethan Schulman of the San Francisco Superior Court issued a preliminary injunction in that case, ordering Uber and Lyft to re-classify their drivers as employees. In issuing the injunction, Judge Schulman found that the Attorney General would likely be able to prove that the drivers are not independent contractors under state labor law because they do not perform work that is “outside the usual course of their business.” Further, in balancing the harms of issuing an injunction, Judge Schulman found that by misclassifying workers as independent contractors, Uber and Lyft are depriving drivers of a “panoply of basics rights and protections,” which has a “ripple effect[] on law-abiding competing businesses, and on the public generally.” By contrast, the harm to the ride-sharing companies is merely the cost it will take to bring their businesses into compliance with state law. The judge stayed the order for 10 days to allow Uber and Lyft to seek an immediate appeal.

The California Labor Commissioner filed separate lawsuits against Uber and Lyft on August 5, 2020. The suits allege, among other things, that Uber and Lyft committed wage theft by misclassifying their drivers as independent contractors, rather than employees. The Labor Commissioner alleges that both companies failed to pay wages in a timely fashion and did not provide accurate itemized wage deduction statements. The Labor Commissioner seeks similar relief to that sought by the Attorney General.

These lawsuits come on the heels of California Assembly Bill 5 (AB-5), which went into effect on January 1, 2020. Under AB-5, workers in California are considered employees unless they are free from control from the hiring entity, perform work outside of the hiring entity’s usual business, and engage in an independently established trade or occupation. Uber and Lyft continue to fight that legislation and are backing a ballot initiative in California that would exempt them from the requirements of AB-5.

Uber and Lyft’s challenges are not limited to California. On July 14, 2020, the Massachusetts Attorney General also sued Uber and Lyft, claiming systematic denial of benefits, like sick leave, paid time off, and unemployment insurance. The suit seeks a ruling that the drivers are employees under state law, as well as an injunction preventing Uber and Lyft from denying the drivers employment protections.

A wide array of companies that rely on gig workers—from food service to child care—could be impacted by court decisions ordering companies to comply with state wage and benefit provisions. This could lead to a fundamental shift of business models in those states, or could drive certain businesses out of those states if they cannot make business profitable using an employee model with the added wage, tax, and benefit costs.

Recent decisions in New York and Pennsylvania have found that Uber and Lyft drivers are employees under state unemployment laws as well. Those decisions are Islam v. Cuomo and Lowman v. Unemployment Comp. Bd. of Review. Similarly, on October 14, 2015, the Oregon Bureau of Labor and Industry issued an Advisory Opinion, stating that Uber drivers are employees for purposes of Oregon state law.

Moreover, in November 2019, the New Jersey Department of Labor and Workforce Development determined that Uber drivers were misclassified as independent contractors and assessed Uber $650 million in past due unemployment and disability insurance taxes. While these decisions and actions in and of themselves do not necessarily have the same impact as the Massachusetts and California enforcement actions, they still could contribute pressure on the gig economy business model.

These cases also serve as an important reminder to companies to review their classification practices. The law dictates whether a worker is an employee or independent contractor. Simply labeling someone an independent contractor is not sufficient if legally inaccurate. The consequences for misclassification can be steep, including liability for unpaid wages, taxes and benefits, as well as civil and criminal penalties.

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Amazon puts out call for gig workers to pick orders at Whole Foods

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Dive Brief:

  • Amazon is recruiting gig workers to shop for and deliver groceries for Whole Foods Market customers who place online orders, according to a Bloomberg report.
  • Drivers can sign up for the program, known as Shop and Deliver, by reviewing an online tutorial about how to pick, pack and safely handle groceries and passing a quiz.
  • The program is related to Amazon Flex, an initiative the e-commerce provider launched in 2015 that uses independent contractors to deliver packages.

Dive Insight:

Amazon’s effort to use contractors instead of employees to pick Whole Foods orders represents a change of course for the company as it continues its drive to disrupt the grocery industry. Whole Foods, which the company bought in 2017, has until now relied on its own store employees to assemble orders from online customers.

The new program brings in an additional dimension to Amazon Flex, which typically limits contractors to driving orders from an Amazon staging facility to customers’ homes. By entrusting gig workers to put orders together for Whole Foods customers, Amazon is potentially increasing the risk that items could be damaged, spoiled or delivered late that is inherent in grocery e-commerce.

“Delivery from A to B is a beautiful on-demand task because it’s very straightforward, very repeatable and you don’t need a lot of training, [but] tasks in stores are often much more complicated,” said Jordan Berke, a former Walmart executive and e-commerce expert who runs Tomorrow Retail Consulting. “A person that comes to your store once a day or once every two days to pick two orders is always learning, while a person that picks 50 orders five days a week” becomes highly familiar with where items are located and how to handle them.

The detailed website Amazon has set up to recruit workers for the Shop and Deliver program reflects the complexity and potential pitfalls associated with the picking process. The site provides step-by-step instructions about how to keep food safe, bag products, select produce and otherwise properly — and efficiently — assemble grocery orders.

“What you’re looking at here is a fairly disruptive efficiency step toward unlocking potential efficiency,” Berke said. “The platform that figures this out and is able to take a part-time on-demand worker and make them as efficient as an in-store dedicated worker does unlock some significant advantages.”

The use of contractors to handle grocery picking is nothing new, of course. Companies like Instacart have depended for years on gig workers to shop for and deliver grocery orders, and Whole Foods itself worked with Instacart until the companies split up in 2019. But while Instacart works as a partner with grocers, Whole Foods has enjoyed an advantage by having its own, store-based employees manage the order-management process.

Amazon’s decision to test the labor model in Whole Foods stores is part of the company’s broader effort to try new ways of selling groceries, something no other company is as well-equipped to do, said Tom Furphy, a former Amazon executive who is now CEO and managing director of Consumer Equity Partners, which invests in retail technology.​

The e-commerce retailer’s extraordinarily deep pockets put it in a position to be able to experiment freely and try multiple approaches at once as it looks for the best ways to make inroads in a line of business, Furphy said. Those expansive resources also give Amazon the ability to continuously look for ways to reduce costs while keeping customer service top of mind.

Whole Foods has been concentrating on lowering prices, and the company’s CEO, John Mackey, said its ownership by Amazon has played a key role in helping it cut costs, CNBC reported. 

“Amazon is always going to look for ways to keep prices as low as possible. They’re always going to look for ways to keep their cost of service as low as possible, and always look for ways to be super responsive in fulfilling customer demand,” said Furphy, who was formerly Amazon’s vice president of consumables and Amazon Fresh. “Those are three constants that will always exist as long as Amazon’s around, and they will absolutely look to deliver on that in the grocery environment.”

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Gig Workers Continue To Experience Problems Getting Unemployment Benefits From Colorado Department Of Labor – CBS Denver

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LAKEWOOD, Colo. (CBS4)– It’s been months and Simone F.M. Spinner is still unable to get her unemployment. We started talking with her in March, when she was applying for help as a gig worker.

(credit: CBS)

“I work in hospitality and wine and academia, tourism. All of those industries have just been decimated.”

At first when she applied for unemployment, the state was trying to get a system up and running to provide assistance to gig workers like Simone, who gets the majority of her income from freelance work.

“I understand back when I talked to you in March that these difficulties were happening and gig employers, gig employees were never able to apply before but they’ve had six months to figure this out.”

And still, she’s having troubles.

The State of Colorado said it had fixed the tool many people were stymied by as they tried to apply for help recently.

(credit: CBS)

“The Colorado Department of Labor and Employment (CDLE) re-launched its online and telephone certification functions for the Lost Wages Assistance (LWA) unemployment benefits program after technical difficulties,” wrote chief communications officer Cher Roybal Haavind in a statement.

The online and phone system had been down since Monday, overwhelmed with requests. But the problems with that system are only part of the frustrations for many people like Simone, who have been unable to get benefits.

“I still haven’t been able to file correctly to get the gig work section of the money of the employments benefits because of the one W2 that I have,” she said.

She has not gotten benefits since July when her initial unemployment help exhausted. Less than a quarter of her income came from part-time teaching work. That meant receiving a W2. Most of her income was freelancing for which the government indicated all she had to do was show proof of income from recent tax returns. But her attempts to get onto the system as a worker with both types of income have been frustrated time after time. So she’s called, a lot.

“It’s been a complete nightmare,” she said.

(credit: CBS)

On July 25, she entered into a cue for a callback about her problems. Her appointment time: Oct. 26 at 10 a.m.

“And it’s a 10-minute call.”

The unemployment system has had troubles dealing with unique situations. Simone owns a home, but is concerned as she runs out of money.

“I am worried about losing my house. I’m worried about not being able to find a job.”

She has applied for over 150 jobs with no success. Those include many out of her industry.

“I’ve applied for everything from working at Starbucks to working as a writer for nonprofits and everything in between, Costco. Just about anything I can find,” she told us.

(credit: CBS)

But her advanced degree, a doctorate, may be a problem with potential employers thinking she won’t stay. Now, she waits for the system to work for her as a pandemic cripples her industry.

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California unemployment claims remain high at 230,000; claims from gig workers fall 53% in coronavirus era

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New official figures on new claims for unemployment benefits in California dipped slightly last week but remained at the high pandemic level. Meanwhile, applications for special help for the self-employed and gig workers plummeted 53% last week, even ahead of new rules to stem a surge in suspected fraud.

New applications for conventional unemployment insurance were 230,225 last week, down 13,000 from 243,404 the week before, the Labor Department reported Thursday.

New claims have been 200,000–300,000 since late May, following a big spike just after the state’s shelter orders for the coronavirus went into place in mid-March. Weekly claims were 30,000–50,000 before the virus.

Californians last week made up 29% of the 790,000 new claims nationwide, up from 28% of 866,000 applications the week before.

Residents receiving traditional unemployment benefits totaled 2.76 million in the most recent tally, for the week ending Sept. 5, down 256,000 from 3.01 million the week before.

Californians accounted for 22% of the 12.3 million Americans receiving benefits as of Sept. 5, roughly the same proportion as the in the week before, according to the latest figures available on recipients.

For the new Pandemic Unemployment Assistance benefits for the self-employed and gig workers, put into place in California in late April from the federal CARES Act, new claims totaled 204,700 in the Golden State last week, down by 236,000 from nearly 441,000 the week before.

On Sept. 11, the California Employment Development Department said it will require more proof before payments are made on the new type of benefits, according to the San Francisco Chronicle. The department will no longer automatically backdate claims for the new benefits to the date of claimed work loss and limit multiple claims at the same address.

It’s one of the reforms Gov. Gavin Newsom has said he’s trying to make to the state’s employment safety net, which at one point had a backlog of 1 million claims and was not answering a number of calls.

The roll of Californians getting the new benefits dropped by almost 592,000 the week ending Aug. 29, the latest data available, to 6.39 million, down from 6.98 million the week before. Recipients of these benefits in the state accounted for 44% of the 14.5 million getting them nationwide, down from almost 48% of 14.6 million the week before.

The hardships of the pandemic economy also came just three months after a new California law, Assembly Bill 5, took effect, reclassifying many independent contractors as employees. However, categories of workers have been excluded from that law by legislation and court orders in the months since.

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

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