Homejoy, the “Uber for housekeeping” app, is closing shop at the end of July. Its CEO said that the shutdown was due to four impending lawsuits charging the company with treating employees as contractors.
Valued at $131 million in its last round of funding, Homejoy is a minor player in the sharing economy, but its downfall may well be a harbinger of things to come for other Silicon Valley startups that rely on contractors instead of employees.
Criticism that these companies mislabel their employees as contractors—depriving them of health insurance, a retirement plan, and other benefits—has been steadily building, and the lawsuits have started to pile up.
Last month, a San Francisco Uber driver won a claim that she had been misclassified as a contractor by Uber, and was awarded $4,000 in the process.
The ruling only applied to one individual, but another class-action lawsuit threatens to make Uber treat all of its drivers in California as employees.
An analysis by tech news and analysis site Re/code and ZenPayroll, a payroll automation startup, estimates that a reclassification of Uber’s 45,000 active drivers in California—those driving at least 20 hours a week—would cost the $209 million annually.
That number sounds ominous, but not fatal for a company valued at $50 billion that’s expected to at least double in size over the next year. Nonetheless, Uber faces threats on multiple fronts.
Last week, the Department of Labor issued a new guideline urging state and federal agencies—including the IRS — to heighten efforts against the misclassification of employees as contractors. The guideline called for putting the economic realities litmus test to use, which would classify a worker as an employee if he or she were economically dependent on that specific business.
Under this criterion, even if Uber’s arguments for why its drivers aren’t employees—such as flexible work hours, and working for multiple businesses at the same time—are valid, it would still have to treat its drivers as employees.
