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All a Gig-Economy Pioneer Had to Do Was “Politely Disagree” It Was Violating Federal Law and the Labor Department Walked Away — ProPublica

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Ten years ago, the Department of Labor wrapped up a lengthy investigation of Arise Virtual Solutions, a company that recruited customer service agents to work from home fielding calls for big brand names like Disney and AAA. The so-called gig economy was in its infancy, with Uber launching and TaskRabbit starting to go national.

The question for the Obama administration’s Labor Department: Did Arise employ those customer service agents? Arise trained the agents and exercised extraordinary control over their work. But it treated them as independent contractors rather than employees. That meant the agents weren’t entitled to minimum wage, overtime or other employment protections. They paid for their own training and equipment, and even had fees deducted from each paycheck for use of Arise’s technology platform.

The Labor Department investigator concluded that the company was violating federal law and cheating its workforce. The agents, no matter what Arise called them, were functioning as employees and should be paid and protected accordingly, the labor department found.

The investigator estimated that over two years, Arise had shortchanged its network of agents by $14.2 million.

In September 2010, the investigator and a higher-up met with two lawyers for Arise. One of the Arise lawyers, three years before, had been in charge of the very division that conducted the Labor Department investigation, appointed to that position by George W. Bush.

The Arise lawyers “politely disagreed” with the department’s findings, according to a report written by the investigator and obtained by ProPublica through a public records request. Arise refused to change its practices. It also refused to pay any back wages.

“They said no to both,” one person familiar with the investigation told ProPublica.

The Labor Department, faced with Arise’s refusal, responded with what amounted to a shoulder shrug. The department didn’t take Arise to court to collect back wages and enforce compliance with federal law. Instead, it walked away without collecting a single dollar for the agents. The investigator submitted his file to the Labor Department’s regional office in Atlanta as “RTP / RTC,” which stands for Refusal to Pay, Refusal to Comply.

The department’s Arise investigation, built on scores of interviews and an extensive review of the company’s business model, had the potential to help check what has become a defining feature of the 21st century economy. An additional 6 million workers joined the gig economy in the past 10 years, according to an analysis of payroll data by the ADP Research Institute. Companies like Lyft, Grubhub, Instacart and others shed labor costs by classifying many workers as independent contractors rather than employees.

“It’s absolutely a missed opportunity for the Labor Department,” said Erin Hatton, a sociology professor at the University of Buffalo who specializes in labor policy and the gig economy. “It tells companies, almost explicitly, that they can flout the law.”

In the years after the Labor Department investigation, Arise expanded from the 20,000 agents it had at the time of the investigation. Last spring, it had 70,000. Its list of corporate clients, past and present, has included Carnival Cruise Line, Comcast, Airbnb, Peloton and Intuit, the maker of TurboTax. The company, one former CEO told a trade publication, helps its corporate clients “squeeze wastage out of a typical workday” by not having to pay these customer service representatives for “lunch, breaks and training” because the agents are treated as independent contractors.

Those agents have included people like Krystin Davenport, a Las Vegas woman who took a $12-per-hour job to help Intuit customers only to see her pay, after fees, chopped to $2.52 an hour.

ProPublica wrote about Arise in October, drawing on transcripts of arbitration hearings, financial slides, corporate contracts and other records.

Arise executives declined to be interviewed for this story. The company provided ProPublica with a written statement, saying, in part, that Arise “complies with all applicable laws. … We strongly believe, and communicated to the DOL at the time, that its determination in connection with the 2010 audit was incorrect.”

“The Larger the Case, the More Reluctant the Attorneys”

Unlike many Labor Department cases, the Arise investigation went deep.

The DOL investigator, whose name is redacted in the released records, interviewed at least 56 people in a probe that lasted over a year. The investigator determined the customer service agents were Arise employees. Arise “exerts an extraordinary degree of control” over the agents by dictating their training and charging them fees, among other measures, the investigator wrote. The agents’ work is also integral to Arise’s business, the investigator found: “In fact it is the principle, primary, and primordial part of the employer’s business.”

Arise owed $14.2 million in back wages, the investigator estimated. That was a huge number by Labor Department standards. In previous years, the average unpaid back wages per department investigation had been about $16,000, according to a 2010 report. Plus, the Labor Department had authority to seek double damages, potentially putting Arise on the hook for $28.4 million, all of which would have gone to the workers.

But in March 2011, the investigator received a memorandum from John Bates, then director of enforcement for the Labor Department’s southeast region, instructing the office to seek back wages only for those specific agents who had been interviewed about unpaid overtime or minimum-wage violations. That dropped the figure dramatically, from $14.2 million to $40,502.69.

While Arise says it doesn’t “have any correspondence” about the exact amount of back wages the Labor Department was seeking, the company refused to pay any money at all. In a written statement to ProPublica, the company said it “strongly” disagrees that it shortchanged workers.

One of Arise’s two lawyers in the case was Paul DeCamp, who had been hired as outside counsel, according to Labor Department records. DeCamp had served as administrator of the Wage and Hour Division in 2006 and 2007. (He didn’t reply to interview requests from ProPublica.)

A Labor Department official declined to comment to ProPublica on the details of the Arise case but said that the agency is constrained by limited staff in deciding which cases to pursue in court. “We can’t be everywhere,” the official said. “Ultimately we have to make some tough choices based on the resources of our agency and the resources of our solicitor’s office.”

Bates, who is now retired, told ProPublica in a recent interview that the case “didn’t go very far because there was little cooperation from the employees.”

“It was determined there was insufficient proof to go forward with litigation. You can say there is a violation, but if they refuse to accept it, the only way to enforce it is to go to court,” he said.

But another person familiar with the investigation said that “many, many” agents were interviewed for the investigation. This person added, “It seemed the larger the case, the more reluctant the attorneys were to get involved.”

A 2010 report to the Labor Department’s Wage and Hour Division, which is responsible for enforcing federal laws governing minimum wage, overtime, family medical leave and child labor, expounded on the need for expanded litigation, saying it “can have broad impacts on employer behavior.”

Shannon Liss-Riordan, a Boston attorney who has litigated worker misclassification claims against not only Arise, but also Uber, FedEx, Amazon and others, told ProPublica that it is “shocking” the Labor Department didn’t take action against Arise based upon its findings. “If companies know that they can just refuse to comply and there will be no repercussions, what message does that send?” she said.

After the Labor Department investigation, Arise lost two separate claims brought by agents who, represented by Liss-Riordan, alleged the company had misclassified them as independent contractors. The company was ordered in 2015 to pay one agent $11,683.64 and another $13,052. But the agents, who as a condition of signing on for this work had waived their right to join any class action litigation against Arise, won those awards in individual arbitration proceedings held in private. Arise paid the relatively small amounts and thereafter continued to classify its network of agents as independent contractors.

An Investigation of the Investigators

The Labor Department’s 2010 investigation of Arise took place a year after the Government Accountability Office published two reports on the department’s sluggishness and ineptitude in these very kinds of cases.

To test the Wage and Hour Division’s competence, the GAO set up a sort of undercover sting. The GAO filed 10 fictitious complaints, complete with pretend employees and employers.

Wage and Hour employees failed to so much as enter five of the 10 complaints in the department’s database, producing no trace that a complaint was ever filed.

The GAO found that employees discouraged complaints (“You’re sure you don’t want to just have a nice conversation with him [employer] yourself?” one Wage and Hour Division representative asked a complainant); pleaded to being powerless (“Once the employer tells me that they’re not going to pay and they can’t, my ability to, you know, force payment has ended,” another representative said); lied about what investigative steps the division had taken; and, in one instance, failed to investigate when informed of children working at a meat-packing plant, operating circular saws.

(The Labor Department, in its response to the report, said it had determined the child-labor complaint was bogus, but did not provide any supporting documentation that would allow the GAO to confirm its account, according to GAO records.)

The GAO provided a three-minute excerpt of these audiotaped calls, available here: https://youtu.be/GVHpdzDHprI. Here are some screen grabs from those excerpts:

In one of the 10 cases, the fictitious employer of a fictitious receptionist in Virginia admitted to not paying minimum wage as required. But the employer refused to pay back wages. When informed of this, the “investigator accepted the refusal without question,” according to GAO records. When the employee asked why the Wage and Hour Division couldn’t do more to help, the investigator told the employee to take it up with his congressman.

A second GAO report published in 2009 focused on the Labor Department’s handling of claims about worker misclassification, the issue at the heart of the subsequent Arise investigation. The report described how treating employees as independent contractors can harm not only vulnerable workers, but also law-abiding companies: “[E]mployers with responsible business practices may be undercut by competitors who misclassify employees to reduce their costs, for example, by not paying payroll taxes or providing benefits to workers.”

The report found a “lack of targeted investigations” focusing on misclassification; a failure by WHD investigators to “consistently review documents” that could indicate misclassification; and, in those instances when the Labor Department did find misclassification, a lack of follow-up to ensure that back wages were paid and the law thereafter followed.

Will the Department of Labor under President Joe Biden be different than it was under the early years of the Obama-Biden administration? A renewed focus on worker classification offers a test.

Earlier this month, as the Trump administration neared its end, the department finalized a rule that would make it easier for businesses to classify workers as independent contractors. But Biden, who has named Boston Mayor Marty Walsh, a former union worker, as his choice to be labor secretary, could freeze the rule before it takes effect.

Another issue will be staffing, which has suffered in recent years from stagnant funding and a hiring freeze. A just-released GAO report says that from fiscal year 2010 to 2019, the number of Wage and Hour investigators dropped from 1,035 to 780, a 25% decline.


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New Yorkers Turn to “Gig” Economy to Make Ends Meet

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Many New Yorkers who have lost jobs due to the pandemic have turned to the gig economy to make ends meet.

Stasha Gumienny is one of them. She works for DoorDash. She’s a “DoorDasher” on top of her full-time job as a school administrator. She’s been dashing since September after she lost her second job as a restaurant hostess last year.

“I was really feeling the hit of not having that second job,” said Gumienny. “I had visited the food pantry a couple of times.”


What You Need To Know

  • Stasha Gumienny is a single mom who works at a school during the day and door dashes in the evenings and on weekends to make ends meet
  • Gumienny lost her second job as a restaurant hostess in 2020, when restaurants shut down at the height of the pandemic
  • According to Lyft, 20 percent of their drivers reported driving more during the pandemic after getting laid off or having their hours cut due to COVID-19

As a single mom, losing that second income was tough.

“I was in a low. I was really getting nervous,” said Gumienny. “I had a couple financial meltdowns. I kept seeing the DoorDash availability on Indeed, and I said, ‘You know what, what do I got to lose?'”

She’s not alone.

According to DoorDash, nearly two million people became door dashers from March to September of 2020.

According to ride-share app Lyft, 20 percent of their drivers said that they drove more during the pandemic because they were laid off or had their hours cut due to COVID-19.

With DoorDash’s flexible hours, Gumienny usually dashes on weeknights and weekends. She leaves her first job at 3 p.m. and starts door dashing by 4 p.m., all so she can make it home to her daughter in time for dinner.

“I do sometimes feel guilty because I’m giving up those Saturdays and Sundays during prime play hours to be with my daughter, but I also know that I’m modeling for her what it takes, and what I’m doing,” said Gumienny. “And she’s learned the quality of a dollar.”

Each delivery can bring in about $6 to $10, and those deliveries add up.

“That might not seem worth it to someone, but if you do this three times a night, or a week, and maybe one weekend, you’re going to see almost $200,” said Gumienny.

After just two hours on the road, she’s done for the night and heads home to make dinner for her 11-year-old daughter, Hannah.

“This is why I wouldn’t want to DoorDash past 6 o’clock. Hannah’s doing homework, and we try to get a good night in,” said Gumienny, as she prepared dinner for the night.

She does this multiple times a week, a grueling work day all to make life a little easier for her and her daughter.



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Economy

‘Lapsis’ and the Rise of Gig-Economy Sci-Fi

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Ray Tincelli, a good-humored, pot-bellied, middle-aged guy with a “’70s mobster” vibe and money troubles, is looking for a new gig. His day job as a courier for a sketchy lost baggage company isn’t cutting it. Played with hangdog charm by Dean Imperial—he looks like Jeremy Piven gone to seed—Tincelli is a brusque Queens dude who could be imported from any number of prestigious cable dramas. For these reasons and more, he’s the offbeat, magnetic center of Lapsis, the funny and surprisingly humane new science fiction indie from first-time feature director Noah Hutton.

The grubby world Ray inhabits looks like ours, but the details are slightly skewed. Ray’s younger half-brother Jamie (Babe Howard), a once-hearty hiker, is now sidelined with a mysterious chronic fatigue syndrome called Omnia. This syndrome is widespread enough that there’s an entire scammy cottage industry around treating it, and Ray is hoping to get his brother into a treatment center. After his courier job is kaput, he seeks advice from a slippery neighborhood character named Felix (James McDaniel), who hooks Ray up with a “cabling medallion” as long as Ray promises to share a cut of his profits. A twist on a taxi medallion, the cabling medallion is a black-market ticket into the world of “cabling,” a bustling new line of contract work where “cablers” spend their days stringing yards upon yards of fiber-optic cables through wooded areas to attach to large metal boxes plopped in forests. It’s all in service of quantum computing, a new information superstructure that has taken over the globe. According to Felix, they’re paid handsomely for their troubles. And so Ray goes forth, into the woods, huffing and puffing his way toward the enigmatic boxes and potential financial freedom.

Lapsis, which is currently available on VOD, is a film in the tradition of lo-fi sci-fi, a genre of independent, dialog-dense science fiction without high-budget spectacle. Think Robot & Frank, Primer, or Being John Malkovich. Or think Boots Riley’s Sorry to Bother You, another satire about the gig economy set in a slightly alternate, slightly futuristic reality. Both are political parables, using genre to prod the callous excesses of capitalism. But while Sorry to Bother You is balls-to-the-wall bonkers, Lapsis is a gentler outing, unspooling its story through long hikes in the woods.

The mechanics of cabling make little sense, but the film isn’t concerned with explaining the logic of its quantum computing empire. The setup is as arcane to the average person as bitcoin mining, because the details don’t matter. What matters is that it’s the newest iteration of grunt work in a global economy reliant on low-paying, no-benefits contractors for human fuel. During his first week on the job, Ray doesn’t learn a thing about what plugging the wires into the boxes actually achieves; what he does learn is that the cabling underclass is justifiably and mightily pissed off—and that the cabling medallion he used once belonged to a notorious former cabler known as “Lapsis Beeftech.”

He learns even more once he strikes up a friendship with Anna (Madeline Wise), a seasoned cabler attempting to organize her coworkers. The cabling company uses tiny doglike robots as pacers for its human workers; if a robot passes them on the trail, it can steal their route and take their money. They’re the bane of the cablers, who scheme to derail the little machines, and the brainchild of the original Lapsis Beeftech. Anna helps Ray trap one of the pacers, and they become confidants. And despite his best efforts to keep his head down and continue earning, Ray is quickly embroiled in a larger plot to find the original Lapsis and instigate a worker revolt.

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Economy

Nigerian fintech startup ImaliPay raises pre-seed funding to service gig workers’ financial needs

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Nigerian startup ImaliPay, which leverages artificial intelligence (AI) and big data to offer tailored financial products that promote the inclusion of gig economy platforms and workers across Africa, has raised a round of pre-seed funding to scale more quickly.

Co-founded early last year by Tatenda Furusa and Sanmi Akinmusire, ImaliPay offers both new and existing gig workers or freelancers the ability to seamlessly save their income and receive in-kind loans through a buy now, pay later model tied to their trade.

As gig workers save money or repay loans on time, they are able to build a credit history that will in turn unlock more formal financial services in the future.

ImaliPay has secured an undisclosed amount of pre-seed funding in order to scale its customer base, with the round led by Australian venture capital firm TEN13, which has also invested in the likes of Chipper Cash and Bookipi. Other investors included in the raise are FINCA Ventures, Optimiser Foundation, Mercy Corps Ventures, Changecom, and angels from Nigeria, Kenya, Norway, and the United Kingdom (UK). 

The primary aim of the investment is to expand and accelerate its growth and footprint in Kenya, Nigeria, and South Africa, with ImaliPay aiming to become the one-stop-shop for gig workers’ financial needs. 

“It’s a great opportunity for investors to participate in the fintech revolution and a fast-growing segment. Our vision at ImaliPay is to advance financial health and inclusion for gig workers who struggle to manage and access flexible financial services that are often only available to traditional SMEs”, said Furusa.

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