Gig economy company Shipt. Inc. is under fire for allegedly misclassifying its employees to avoid providing state-required protection.
Minnesota Attorney General Keith Ellison filed a lawsuit on Oct. 24 in Minnesota’s Hennepin County District Court against the Target-owned delivery platform, alleging that it has misclassified its delivery workers as independent contractors to avoid the cost of providing them with the employment protections guaranteed by Minnesota law. The announcement comes in conjunction with the filing of a similar lawsuit against Shipt by District of Columbia Attorney General Karl Racine. Both lawsuits challenge Shipt’s decision to misclassify workers to avoid labor costs.
“Every Minnesota worker, especially those who were essential to all of us during and after the worst days of Covid, should take home every dollar they earn under the law—no exceptions,” Attorney General Ellison said. “But some companies break the rules and the law by misclassifying their employees as independent contractors, which means those workers miss out [on] some of the law’s most basic protections while Shipt unfairly enriches itself. That’s wrong anytime—and at a time when so many Minnesotans are struggling to afford their lives, it’s offensive.”
Gig-economy jobs are appealing to workers because they allow for flexible hours. Companies like Shipt suggest that being an independent contractor is a necessary tradeoff for having a flexible work schedule, but that simply is not true, the lawsuit alleges. The ability to set one’s own work hours is just one small part of determining whether someone is an employee or an independent contractor under Minnesota law. In an economy where flexible and remote work is becoming more and more common, it is increasingly clear that an employer’s control of the work performed is far more significant than when it is performed.
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“I’m suing Shipt because instead of playing by the rules most Minnesota employers play by, Shipt is taking advantage of Minnesotans to enrich itself while leaving workers to fend for themselves,” Ellison continued. “Unlike other employees, these workers have no clarity on how much they will be paid day-to-day, and they often don’t receive the minimum wage and overtime they’re entitled to.”
The attorney general’s investigation into Shipt’s employment practices revealed that, despite the delivery company’s public claims that its “shoppers,” the term it uses for workers, are independent contractors who run their own businesses, Shipt controls nearly every facet of a worker’s tasks, leaves them with no ability to set the terms of their work, and doesn’t let them create independent, self-sustaining businesses outside of Shipt’s proprietary mobile application.
The lawsuit alleges that, despite Shipt’s characterization of shoppers as independent businesspeople, Shipt determines who is eligible to be a shopper and controls customer access to shoppers and vice versa. Shipt—not its shoppers—sets the markup for goods ordered through its service, allowing no room for shoppers to profit because of their business acumen or customer relationships. Shipt even limits how shoppers can communicate with customers, masking both customer and Shopper numbers from each other while shoppers perform their work, the investigation found.
“I have always stood with Minnesota’s workers and today I especially thank every essential Shipt worker who spoke to my office about Shipt’s unfair employment practices,” Ellison said. “Shipt has modeled its entire business on shifting its duties and obligations as an employer from itself onto its workers, even though Shipt could not exist without its ‘Shoppers.’ On top of that, Shipt has done everything it can to make sure that workers have no power to fix this unfair system of misclassification on their own. That is why the Attorney General’s Office had to step in.”
The lawsuits come less than two weeks after Instacart agreed to pay $45.6 million to settle a gig worker suit filed by the city of San Diego in 2019. And over the summer, about 100 protestors rallied against Assembly Bill 5 (AB5), a bill signed into law by California Governor Gavin Newsom that extends employee classification status to some gig workers; under AB5, companies must use a three-pronged test to prove workers are independent contractors, not employees.
For Target, these lawsuits could be problematic for the retailer’s bottom line. After acquiring the company for $550 million in cash in 2017, Shipt is valued at $14 billion, according to market analysts, and had same-day deliveries up 11 percent in quarter two of fiscal year 2022. Notably, Shipt grew 300 percent over the holidays last year.