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You're Shipt outta luck: App sued for treating delivery workers as contractors

'No, no, they're shoppers, not employees' ain't gonna fly with DC AG

Shipt, a delivery service owned by Target, has been sued by the Attorney General of Washington DC for allegedly unlawfully misclassifying employees as independent contractors to avoid paying for worker benefits.

The civil lawsuit [PDF], filed in a Washington DC Superior Court, alleges Shipt deliberately mislabels workers, thereby denying basic employment rights, shifting costs to those workers, and subverting the law.

Shipt calls these workers "shoppers" because they buy stuff on behalf of others and deliver it for a fee. Users go into the Shipt app, place an order for stuff they'd like to be picked up – such as groceries from a store – and pay for it. A Shipt shopper logs in too, sees the available order in the app, agrees to take it on, goes to the store, gets the required items, pays for it using a Shipt visa card, and then delivers it to the user. Shipt and the shopper take a cut of the cost.

"Through this unlawful scheme, Shipt reduces its labor costs by evading basic employment requirements for its core workers," the complaint says. "Through misclassification, Shipt denies shoppers their right to minimum wage, overtime pay, and paid sick leave. And Shipt evades its obligations to pay what it owes to District [of Columbia] programs, including paid family leave and workers' compensation."

"Increasingly, we’re seeing companies abuse hard-working District residents by fraudulently calling them independent contractors and, as a result, denying them wages and benefits they are legally owed," said Washington DC AG Karl A. Racine in a statement Thursday.

"At every step of the way Shipt cheats, putting profits over workers and violating its employees' basic rights just to make another dollar. We're using all our authority to level the playing field and hold Shipt accountable for trying to cheat DC workers."

A similar lawsuit from a US state attorney general is anticipated today, according to Washington DC's Office of the Attorney General.

The venture-capital enticing business model adopted by Uber, Lyft, and similar app-dispatched service providers – hiring people and calling them something other than employees to duck the cost of benefits and taxes – has run into regulatory headwinds recently. The US Department of Labor earlier this month proposed rules to clarify whether these so-called gig workers are employees or independent contractors, following in the footsteps of states like California and Massachusetts that have tightened worker classification. And in September, the US Federal Trade Commission also indicated that it intends to pay closer attention to "gig work."

The Washington DC lawsuit asserts that Shipt's shoppers – of which there are hundreds in the District of Columbia and more than 300,000 nationwide – met the typical criteria for being classified as an employee. "Shipt has the power to hire and fire shoppers, unilaterally determines their rate and method of payment, and supervises and controls them with detailed shopping and delivery instructions, as well as a battery of performance metrics," the lawsuit says.


Back in March, to stave off regulatory ruin, app-based service companies DoorDash, Gopuff, Grubhub, HopSkipDrive, Instacart, Lyft, Shipt, and Uber banded together to form an industry lobbying group called Flex to be "the voice of the app-based economy."

And lo, Flex has something to say on this very subject, through a hired survey firm called Morning Consult. A Morning Consult survey released on Monday found that the business model used by the companies funding the trade group that funded the data gathering is the business model preferred by most of the 1,251 surveyed workers. More specifically, 77 percent of app-based workers "support maintaining their current classification as independent contractors."

The flexibility that comes with being an independent contractor is the primary reason Shipt Shoppers choose to earn on our platform

Shipt spokesperson Evangeline George told The Register in an email, "Shoppers with Shipt are independent contractors, and the flexibility that comes with being an independent contractor is the primary reason Shipt Shoppers choose to earn on our platform. We strongly disagree with the action taken by the Attorney General for the District, and we’ll continue advocating for Shoppers and the opportunity to earn flexible income across the DC area."

The Register asked if there's a reason why Shipt could not offer both flexibility and employee benefits.

Shipt chose to reply "on background," meaning we're expected not to quote the response directly. Essentially, Shipt's position is that it supports changes to labor law that would let workers avail themselves of a portable benefits model, where companies provide funds to workers that they can put towards benefits they manage themselves or through a third party. Whether fractional benefits cobbled together from various part time gigs can be made to add up to functional health coverage and other benefits, while also paying relevant taxes, isn't obvious to us.

Academic studies have found the purported flexibility and freedom of app-based delivery services to be largely illusory – workers feel liberated by the absence of an on-site human supervisor without recognizing the capacity for managerial control through logistical or gamified app interactions.

In a 2019 paper titled Algorithmic Control in Platform Food Delivery Work, [PDF] authors Kathleen Griesbach (Columbia University), Adam Reich (Columbia University), Luke Elliott-Negri (City University of New York), and Ruth Milkman (City University of New York)

"Workers’ feelings of choice and agency in relationship to the work help them feel invested in it, despite the fact that the pay is often minimal," the authors observed. "Robert, who in one breath described Postmates as 'one of the better jobs I’ve ever had,' in the next breath admitted, 'I don’t know anybody who can live on it.' For many of the workers with whom we spoke, the freedoms of platform employment came at a significant financial cost."


While Shipt in this study shines by not being Instacart – singled out by the researchers for its "algorithmic despotism" – the app-based delivery business doesn't stand out as being particularly remunerative.

The authors found, based on an average across various food delivery services, that "our survey respondents reported earning an average of approximately $13 per hour, including tips and after deducting expenses."

Building tips into salary calculations represents yet another way companies shift the cost of paying a fair wage to their customers. US Postal Service mail carriers, with a median wage of $26.14 per hour generally don't get tips for deliveries, and mail customers don't have apps encouraging them to augment union-negotiated postal worker pay and benefits.

Shipt has claimed, "Experienced Shipt Shoppers can make anywhere from $16–$22/hour," and elsewhere has reportedly said shoppers earn "more than $21 per shop including base pay, promo pay and tips."

Whatever the case, Shipt appears to pay better than the federal minimum wage of $7.25 per hour but potentially less than the minimum wage in some states (e.g. California at $15 per hour) and less than the $19 per hour starting pay of Amazon warehouse and delivery workers.

Last year, Karen Short, an equity research analyst for Barclays, reportedly estimated Shipt to be worth $15 billion. ®

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