On Thursday, delivery service Gopuff was fined $6.2 million by the state of Massachusetts for improperly classifying almost 1,000 drivers as independent contractors rather than employees, who would have been more expensive for the company. The worker classification issue is a critical one for app-based services like Uber, Lyft, and Grubhub that depend on independent contractors to control costs. Hiring contractors can be 30% cheaper than having employees, who are entitled to an array of benefits and legal protections.
Philadelphia-based Gopuff operates in hundreds of US cities and Britain. The company, backed by Softbank Group Corp, is preparing for a US initial public offering. A spokesperson for Gopuff said the company strongly disagrees with the fines and intends to appeal them. “Gopuff is focused on giving people the chance to earn with us in whichever way makes the most sense for them,” the spokesperson said.
Massachusetts Attorney General Andrea Campbell, a Democrat, announced the fines as her office concluded an investigation into the company that was launched after receiving complaints from former and current workers. Massachusetts law sets a high bar for proving that workers are independent contractors. That includes demonstrating that workers are not under a company’s direct control, operate independent businesses, and perform work outside of a company’s normal course of business.
Campbell stated that the standard did not apply to Gopuff drivers and that the company had failed to provide drivers with paystubs and offer them with paid sick leave that Massachusetts law requires for employees. “When employers misclassify their workers, they deprive them of basic employee protections and benefits and create an unfair playing field for other law-abiding companies,” Campbell said in a statement.
It is worth noting that Uber and subsidiary Postmates are currently challenging a similar California worker classification law, which they argue is unconstitutional because it was targeted at app-based transportation services. As the gig economy continues to grow, worker classification will undoubtedly remain a key issue, with regulators continuing to look for ways to ensure workers’ rights are upheld.