GrubHub, DoorDash, and Caviar—three major mobile and online food-ordering companies—have just been named as defendants in a series of lawsuits filed in San Francisco courts. These companies are dealing with the same problem that has been plaguing Uber and Lyft: are the people who work for them employees, or independent contractors?
Who cares? Well, the companies, for one, care a hell of a lot.
The food-delivery agencies argue with a vengeance that their workers should be classified as independent contractors, freeing the companies from such pesky annoyances as unemployment insurance, workers' compensation, Social Security, and other benefits. Oh yeah—it also prohibits them from having to offer reimbursements for expenses like gas, parking, and data usage.
If you're an American corporation, it's actually pretty damn smart to clean your decks of employees and use only independent contractors.
The lawsuits were filed in San Francisco Superior Court by a Boston attorney named Shannon Liss-Riordan, who has been involved in similar lawsuits against Uber and Lyft. Liss-Riordan told The Chicago Tribune that "for all of these cases, we're also representing drivers individually, including filing individual arbitrations where necessary." The lawsuits against GrubHub and DoorDash are class-actions, while the Caviar case will go to arbitration.
The so-called "on-demand economy" is built on business models that rely on independent contractors. The classification—and its legal implications—have helped company valuations skyrocket. But judges and regulators are starting to question why these workers aren't considered full employees—with all the benefits that inure to that status. The California labor commissioner's office just ruled in June that one Uber driver was, in fact, an employee of the company. And a federal judge recently certified a class-action suit against Uber to determine the same question.
As the Los Angeles Times reported recently, workers' advocates are all over these new on-demand businesses; they argue that technological innovation shouldn't change the basic definitions of who is an employee versus an independent contractor.
"It's just a new manifestation of an old problem. People tend to see it as an app or a software application, but in fact there are people who are doing jobs behind it," Caroline Fredrickson, president of the American Constitution Society, told the LA Times.
GrubHub, Inc.—which owns both GrubHub and Seamless, following a recent merger—operates in more than 700 US cities and London, calling itself the "leading takeout marketplace." Matt Maloney, the CEO of GrubHub, reported that "GrubHub's almost 6 million diners ordered more than 20 million times during the [second] quarter of , driving revenue growth of 47 percent year-over-year."
Caviar, as the name implies, targets a higher-end of the market. It is backed by the famed Winklevoss twins (who successfully sued Mark Zuckerberg under the claim that he stole their concept and used it to create Facebook) and raised $15 million in venture capital last year. DoorDash recently raised $40 million from venture capital firm Kleiner Perkins Caufield & Byers.
So a lot of money is riding on these instant gratification-based companies. But if they can't classify their workers as independent contractors and are forced to 'fess up that they are, in fact, employees, GrubHub, DoorDash and Caviar may see their bottom lines—and venture capital money—start to disappear.