Why Third-Party Delivery Apps Are Being Ordered To Reclassify Couriers

Recent injunctions in California are forcing DoorDash, Uber and Lyft to reclassify their drivers as employees. San Francisco's district attorney recently filed a preliminary injunction against food delivery firm DoorDash to reclassify its contractors as employees, days after California Attorney General Xavier Becerra granted a similar request in a case against ride-hailing firms Uber and Lyft. 

A reclassification of workers would mean gig workers would qualify for healthcare benefits, sick pay, paid leave and other benefits not currently available to them. All of the major restaurant delivery platforms, including DoorDash, Grubhub and Postmates, operate with contracted workers. Waitr used to have a fleet of hourly delivery drivers, but shifted its couriers to contracted workers in February as a way to save money. Contracted workers aren't eligible to receive benefits under federal tax law, and employers aren't required to withhold taxes for them, either. 

"We are seeking an immediate end to DoorDash's illegal behavior of failing to provide delivery workers with basic workplace protections," Lead District Attorney Chesa Boudin told New York Times. “These workers are employees under California law and entitled to these important safeguards.”

Many third-party delivery companies say most of its workers prefer to be contractors, arguing that flexibility over working hours and location is impossible under an employee model. But critics have said it places unreasonable financial burdens on drivers and gives Uber and Lyft unfair advantages over businesses that follow employment laws.

Last year, AB-5 codified a state supreme court ruling that said an individual could be classified as an independent contractor only if the worker: a) is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; b) performs work that is outside the usual course of the hiring entity’s business; and c) is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

When AB-5 took effect, some employers made major changes to their workforces. Uber and others have spent significant resources challenging the legislation in court and via ballot initiatives. In fact, Uber, Lyft, DoorDash, Instacart and Postmates are spending more than $110 million to support a November ballot measure in California, Proposition 22, to reclassify app-based drivers as contractors.

"The vast majority of drivers want to work independently, and we've already made significant changes to our app to ensure that remains the case under California law," an Uber spokesman said in a statement provided to various media outlets. "When over 3 million Californians are without a job, our elected leaders should be focused on creating work, not trying to shut down an entire industry during an economic depression."

A DoorDash spokesman said the company felt the effort was ill-timed and that its internal data suggested the majority of its workers wanted to remain as contractors. "In the midst of one of the deepest economic recessions in our nation's history, today's action ... threatens billions of dollars in earnings for California Dashers and revenue for restaurants that rely upon sales from delivery to keep their businesses open, "the spokesman said in a statement. 

Recently, the third-party delivery industry has been going through a power struggle. If Uber, Lyft and DoorDash can no longer operate in California, it would certainly impact the power dynamic in key California cities like Los Angeles, where Postmates — which Uber acquired in July — has such a stronghold in that market. If Uber and its new acquisition are forced to exit, this could significantly undermine the benefits of this deal, since Postmates' strong West Coast presence is considered its main asset. 

In a more drastic scenario, Uber CEO Dara Khosrowshahi told MSNBC that it may have to close temporarily. “If the court doesn’t reconsider, then in California, it’s hard to believe we’ll be able to switch our model to full-time employment quickly,” she told the network.

While both sides have valid arguments, there is no doubt that the third-party delivery space will need to make some changes if it hopes to survive.