Sacramento, CA - San Diego City Attorney Mara Elliott has filed a lawsuit against grocery delivery company Instacart, alleging the tech giant has misclassified its employees as independent contractors.
The suit comes three days after new legislation, called Assembly Bill 5, cleared the California Legislature, spurring panic among gig economy giants such as Uber and Lyft. The bill is now on its way to the desk of Gov. Gavin Newsom, who has previously pledged his support. Should the bill be signed into law, it would prevent many companies from classifying their workers as independent contractors rather than employees.
According to the report in the San Diego Tribune, Elliott's lawsuit is asking for Instacart's workers to receive compensation retroactively, including payment for things like minimum wage, overtime pay, meal breaks and expense reimbursement. The suit also alleges Instacart evaded paying workers compensation and unemployment insurance, along with state and federal payroll taxes.
Instacart did not respond to a request for comment by publication time.
San Francisco-based Instacart is a grocery delivery service that operates nationally and has a presence in San Diego. Its app allows customers to place grocery orders online, which are then purchased and delivered by a "shopper" who drives the order directly to their home.
The suit alleges that Instacart shoppers do not qualify as independent contractors under a 2018 California Supreme Court decision (Dynamex Operations West, Inc. v. Superior Court). It's the Dynamex case that spurred AB 5 to move its way through the state legislature this year, sponsored by San Diego Democrat Lorena Gonzalez.
Procopio law partner Tyler Paetkau, who practices employment law, said AB 5 would change the game entirely for companies hiring contract workers. Employers used to have a lot of wiggle room to classify workers as independent contractors. This new bill now tightens the definition of an independent contractor. The most notable difference is that employers cannot use contractors unless the person's work is “outside the normal business activities” of the hiring company.
Elliott's suit alleges Instacart does not meet the criteria outlined in Dynamex, which AB 5 mirrors.
"Shoppers perform work that is directly within the course of Instacart's business model, including ‘groceries delivered in as little as one hour,'" stated a City Attorney's Office news release. "Shoppers are essential to providing the core service the company offers."
Proponents of AB 5 say the legislation will improve labor conditions for gig economy workers, forcing companies to offer benefits and protections that a normal employee would be granted - such as minimum wage, paid sick days and health insurance benefits. Opponents say the bill invokes outdated views of “employment,” hampering the millions of Californians who want flexible work.
Lawsuits seeking retroactive restitution could be a major challenge for companies throughout the state, Paetkau said, especially small businesses that have adopted the gig economy model popularized by Uber and Lyft.
"A lot of these companies are startups," Paetkau said. "They have some funding but limited resources. The worst thing that can happen to them is a lawsuit or claim. Especially involving multiple workers. This could wipe them out."