Instacart shoppers probably aren't independent contractors, judge rules

California is “unapologetically pro-employee,” judge says. When it comes to enforcing AB 5, “the handwriting is on the wall.”

San Diego Union-Tribune

Feb. 25, 2020 5:36 PM PT

Instacart is likely misclassifying some of its workers as independent contractors instead of employees, a San Diego judge has ruled, adding momentum to a fight that is roiling California’s gig economy.

San Diego County Superior Court Judge Timothy Taylor issued an injunction Feb. 18 against Instacart, essentially warning the grocery delivery company that it’s failing to comply with the state’s labor laws — although he did temporarily stay his injunction, preventing it from taking effect right away. Instacart said Tuesday that it disagrees with the ruling and plans to appeal.

San Francisco-based Instacart offers an app with which customers can place grocery orders. Gig workers dubbed “shoppers” then buy those items from stores and deliver them to the app users.

The suit, filed in September by San Diego’s city attorney, alleges that Instacart shoppers do not qualify as independent contractors under a 2018 California Supreme Court decision. That decision, known as the Dynamex ruling, led to the state’s sweeping new employment law: Assembly Bill 5. The law took effect Jan. 1, and enforcement is scheduled to begin in July.

AB 5 sets a new standard for defining what independent contractors are, requiring companies to reclassify many workers as employees — making those companies responsible for benefits and protections such as minimum wage, overtime pay, workers’ compensation and unemployment and disability insurance.

Taylor’s ruling expressed skepticism about the “wisdom” of the law, but it said California’s “unapologetically pro-employee” policy makes clear that if the case goes to trial, Instacart is unlikely to win.

“All three branches of California have now spoken on this issue,” Taylor wrote in a court filing. “The Supreme Court announced Dynamex two years ago.... The Legislature passed AB 5 last fall. The governor signed it. To put it in the vernacular, the handwriting is on the wall.”

What does this ruling mean?

San Diego’s lawsuit originally asked for Instacart’s workers to receive compensation retroactively, including payment for things such as minimum wage, overtime pay, meal breaks and expense reimbursement. The suit also alleges Instacart evaded paying state and federal payroll taxes.

“This landmark ruling makes clear that Instacart employees have been misclassified as independent contractors, resulting in their being denied worker protections to which they are entitled by state law,” San Diego City Atty. Mara Elliott said in a statement. “We invite Instacart to work with us to craft a meaningful and fair solution.”

Although the injunction sends a warning to Instacart and similar companies, it won’t have an immediate effect. The court tossed out the suit’s original request for a mandatory injunction, which would have required Instacart to make payments and take other steps to comply with the law. Instead, Taylor issued a prohibitory injunction. This type of order is meant to indicate that Instacart is not complying with the law, while taking the onus off of the court to oversee business transactions related to the case.

Will the workers get what they want?

Procopio law partner Tyler Paetkau, who practices employment law and is unaffiliated with the San Diego case, said the ruling indicates the judge is skeptical that state law will give workers — and their advocates — the outcome they hope to see.

“The harms alleged by the city (unpaid wages, overtime, and rest breaks, missed meals, and reimbursement for expenses necessary to perform the work) will take many months to sort out, and if indeed defendant’s survival is in jeopardy (as it claims), may never be remedied by monetary compensation,” the court wrote. “Shoppers may move on to other occupations, or out of California altogether. The underpaid payroll taxes may never be recovered.”

Paetkau says this indicates the court was troubled with its own ruling.

“I think what [the judge] is suggesting is that if the decision stands, these companies will be underwater with bankruptcies or creditors,” Paetkau said. “Employees will never get paid; the state won’t get its taxes. The companies will essentially dissolve and the workers will lose their jobs.”

Instacart’s planned appeal

Instacart said it disagrees with the judge’s decision.

“We’re in compliance with the law and will continue to defend ourselves in this litigation,” the company said in a statement. “We are appealing this decision in an effort to protect shoppers, customers, and retail partners. The court has temporarily stayed the enforcement of the injunction and we will be taking steps to keep that stay in place during the appeals process so that Instacart’s service will not be disrupted.”

Taylor’s ruling invites such an appeal.

“This is a lively area of the law right now; there are numerous cases pending which may ultimately bear on the rights and duties of the parties,” he wrote in the court filing. “Also, there are evidently efforts underway to present the difficult questions raised by the conflict between traditional employment concepts and the so-called ‘gig economy’ to the voters in the form of an initiative. Frankly, the sooner the Court of Appeal can hold forth on these issues, the sooner the parties will have a clear and definite signal of what is expected of them.”

Meiling writes for the San Diego Union-Tribune.