Chito Peppler knows D.C.’s restaurant scene better than your average resident. In 2012, having lived in the District for a decade, he created a search engine called RUNIN Out to promote dishes from eateries in the metro area. Since 2012, Peppler has added more than 5,000 restaurants and stores to RUNIN Out. The index gave Peppler a growing familiarity with menus and venues, and at the recommendation of a friend, he put this knowledge to use working as a courier for Postmates, an “on-demand” delivery app, from April to June of this year. In 24 states plus the District of Columbia, Postmates operates a network of couriers from its headquarters in San Francisco. It promises to have food, toiletries, clothes, and other products “delivered in under one hour.” (One of its co-founders has described the company as “anti-Amazon.”) Dynamically priced delivery fees start at $5 and increase with distance; a nine-percent service fee also applies.
Like many other freelance laborers do, Peppler saw Postmates as an opportunity to bring in a little extra cash. Tech writers as well as the app’s users have compared the service to Uber, which does not consider its drivers “employees” but “partners” who work as independent contractors.
Another similarity Postmates and Uber share: Both allow customers to rate their operators on a five-point scale, as a measure of performance. When Peppler’s rating dropped to 4.6, a lawsuit he filed in late August states, Postmates effectively fired him. Their purported explanation? “The rating is the rating.”
“Without workers like Mr. Peppler, there is no Postmates. There is no business,” says attorney Jason Rathod, who is representing Peppler in a class action claim. “They are fully economically integrated into the system. That’s a key fact of the employee-versus-independent-contractor [distinction].”
Whether Postmates, Uber, Instacart, or other on-demand app companies can legally classify their workers as independent contractors is at the heart of lawsuits springing up across the country, from Massachusetts to California. Pro-labor groups argue that these workers are being mislabeled as independent contractors by start-up firms trying to avoid paying full salaries, giving benefits, and complying with federal laws. In other words: It’s a form of wage theft.
The companies contend that contractors are largely free to determine their own schedules, work for multiple companies, and choose clients. 1099-ers—so dubbed for the type of IRS form they receive from clients—are their own bosses. If service providers don’t like the terms of the partnership, they can go elsewhere.
As a class action, Peppler’s suit incorporates all people who have worked for the company as couriers in the District. Rathod says he’s not sure what the scope of that group is, but guesses it could be around 300 people. (Postmates did not respond to repeated requests for comment.) The lawsuit alleges that Postmates does not pay its couriers minimum wage as required by D.C. statutes, nor does it reimburse them for expenses that are essential to their employment, like gas and phone data. The plaintiffs seek compensation for back wages and overtime, which could amount to more than $3 million.
“Labels don’t really matter; it’s the economic realities,” Rathod’s co-counsel, Nicholas Migliaccio says. “Giving workers labels to deny them protections is an injustice worth fighting against.”
If the courts rule in the class’ favor, Postmates would have to treat its couriers as employees and pay them accordingly, or change its business model. But a victory for the plaintiffs could also set a precedent for similarly situated contractors, be they Uber and Lyft drivers, Homejoy cleaners, or GrubHub food carriers. The result of Peppler’s case will have implications beyond the District.
According to the lawsuit, Peppler, who declined to sit for an interview but provided background information about himself through Rathod, once had to deliver to a client food from made-to-order Italian restaurant Vapiano. Peppler’s lawyers say his compensation was less than $10.50 an hour, D.C.’s current minimum wage (scheduled to rise to $11.50 next year). “He had to travel to the location, wait in line for 30 minutes, order, pay, pick up the food, and then travel to the customer,” their claim alleges. “The one job took an hour and [Peppler’s] fee plus tip amounted to less than the minimum wage. When expenses, such as travel costs, are factored in, the hourly wage was even less.”
The entrepreneur finds himself in a legal gray zone that has expanded concurrently with the so-called sharing economy. On the one hand, many 1099 workers enjoy the flexibility that being a contractor allows. On the other, an increasing number of such workers realize that the jobs aren’t as open-ended as they anticipated.
“More often than not it’s a situation where a person is starting [a job] and wants to see where it goes,” Tonya Love, an attorney for the Metropolitan Washington Council, AFL-CIO, says of the two or three 1099 clients seeking unemployment she sees each year. “Then they’re [at work] every day, the hours are designated by the employers, the workers are supervised—factors that start to pull them into employee status.”
District law outlines several criteria that determine whether an employer has “misclassified” a worker, regardless of whether that worker signed an agreement designating them a contractor (think: realities not labels). Those include whether the employer can hire and fire the laborer; whether the employer controls work schedules and conditions (supervision); and whether the person does tasks that are vital to the business in question. Also on the checklist: whether the employer sets a rate and method of payment; whether the employer maintains employment records; and whether the employer owns equipment necessary for the job. Generally, the more skilled a worker is, the more likely they’ll be hired as an independent contractor. The sharing economy is challenging that rule of thumb.
Sheena Wadhawan, advocacy director at the D.C. Employment Justice Center, explains that new business models propagated by companies like Uber are leading to an uptick in misclassification claims. Still, she notes, mislabeling occurs across industries, at firms small, large, and everything in between; it’s not a new problem, nor limited to mobile apps.
“It’s important for folks to remember that if you misclassify someone, there’s a loss all around,” Wadhawan says. “There’s a loss of tax revenue for the jurisdiction. Also, the worker doesn’t get benefits like unemployment insurance, [certain tax] deductions, or [compensation for] overtime. People should know that if they’re being misclassified, there’s something they can do about it.”
The lost tax revenue isn’t mere chump change. In 2010, then-U.S. Department of Labor Deputy Secretary Seth Harris testified to Congress that misclassification could decrease employers’ labor costs by 20 to 40 percent. (Businesses don’t have to pay Social Security and unemployment insurance taxes on contractors.) A 2013 report from the U.S. Treasury Department found that an employer can save roughly $3,710 every year per employee (paid an average annual income of $43,007) by misclassifying workers as 1099-ers. According to Jobs with Justice, a national nonprofit, the federal government loses a minimum of $3 to 4 billion a year to misclassification. The total number of misclassified employees is unknown, but it’s likely in the millions.
In D.C., workers who believe they’ve been misclassified can liaise with attorneys to file lawsuits, or register complaints with the District’s Department of Employment Services. Investigators for the agency conduct fact-finding missions, as a result of which employers may be required to pay back wages or appear at hearings if they dispute certain claims. When an employer found to have misclassified a worker fails to respond to claims or to forfeit damages, DOES may refer the case to the Office of the Attorney General. OAG, in turn, may choose to prosecute the employer.
But few cases get that far, in part due to workers’ fear of retaliation by employers or of hardships finding a job once they’ve blown the whistle.
“Many workers are really living hand-to-mouth, so they’re afraid of losing their income even as retaliation is technically illegal,” Wadhawan says. “What do you do?… Lawsuits take one to three years to get through the court system. Is that an effective route? ‘I’ve got to pay my rent!’”
Among other limitations, independent contractors can’t form unions under the National Labor Relations Act, making it exceedingly difficult for them to find strength in numbers. The Internet has somewhat alleviated such barriers through online forums where 1099-ers can trade notes. Uber drivers, for instance, recently used social media to promote a “nationwide strike” (although beyond raising awareness, the strike’s economic impact was unclear). “Hey Travis,” a flier addressing Uber’s CEO, Travis Kalanick, reads. “Your UberX drivers are fed up! Uber is a great idea, but the rates aren’t cutting it playboy. Stop treating your drivers like shit!”
One ex-Uber driver from Orange County, Calif., who requested anonymity citing future job concerns, says he started to feel like an employee of the company when his driver account was deactivated for a day in September. The driver, whom we’ll call Tom, claims Uber shut down his account after he had registered what he thinks may have been “too many cancellations”: Riders would hail him through the app, but if they had poor ratings (a red flag for possible disrespectful and drunk clients) or wanted to take a trip that ultimately wouldn’t benefit him (say, if the client needed him to pick them up outside of a surge area he’d been waiting in, or he was already past their exit on the freeway), Tom would cancel the rides within 15 seconds of accepting them. The company, he speculates, eventually caught on to what he and other drivers were doing to exercise more control over their trips: Uber sent him several messages warning him that his account had been flagged for “having significantly more cancellations” than others. On Oct. 9, a few weeks after Uber closed Tom’s account temporarily, the company had it permanently deactivated.
“They sent me a message that said, ‘We believe Uber might not be the right lead-generation tool for you,’ and they decided to ‘discontinue our partnership,’” says Tom, who now drives for Lyft. “Did I want to be an ‘employee?’ No, because I get to set my hours… [But] when you tell me when I can cancel or accept rides, and then I get deactivated for things I feel aren’t in my best interest, that’s when I feel like I was an employee. We’re supposed to be ‘independent contractors,’ but there’s rules.”
Uber acknowledges that if a driver’s cancellation and acceptance rates are persistently high and low, respectively, it can deactivate his or her account; the same goes for a driver who consistently receives low ratings. There’s no precise threshold for when Uber pulls the trigger, though, and median ratings vary by city. Drivers can appeal their ratings and rates at Uber’s partner-support centers, or by email or phone.
As for drivers’ status as independent contractors, a study Uber published in January found that 73 percent of drivers surveyed said they preferred “a job where you choose your own schedule and are your own boss [to] a steady 9-to-5 job with some benefits and a set salary,” while 63 percent of them indicated that they use Uber “to have more flexibility so they can balance work and family.”
Rathod says many Postmates couriers stand to “critically benefit” from Peppler’s suit. (The District’s Wage Theft Prevention Amendment Act, which went into effect earlier this year, permits employees to opt-out of class actions instead of requiring them to opt-in.) While he declined to speculate on how the company’s legal team would address the claim, he did say that they could file for a motion to dismiss, or push back against its class action nature.
“Wage theft happens across industries, to people from all walks of life,” Rathod says. “It’s a problem where employers in almost every field have tried to cheat the system. We just think communities should feel passionately that people should get a fair day’s wage for a fair day’s work.”
Illustration by Lauren Heneghan
More from this issue:
– Independent contractor misclassification happens in seemingly every industry, from construction to exotic dancing.
– As D.C. gets more expensive, can independent dog-walking musicians make it work?
– Has DC Health Link unleashed an entrepreneurial spirit in District residents?