Watch Now

Instacart to pay $46.5 million to over 300,000 workers in settlement

City of San Diego filed lawsuit against gig economy company in 2019

The most active Instacart workers could receive thousands of dollars in payments according to the city of San Diego (Photo: Shutterstock)

The same day the Biden administration introduced a proposal to reclassify independent contractors as full-time employees, gig workers earned another big victory.

On Tuesday, Instacart settled a lawsuit with the city of San Diego and agreed to pay out $46.5 million to more than 300,000 current and former workers.

Filed in 2019, the suit alleged that the workers were misclassified as independent contractors. That ultimately held weight under the law with the passage of California’s Assembly Bill 5 (AB5), which calls for protections for gig workers.

“We are pleased to get justice for these delivery workers, who, at the height of COVID-19, provided an invaluable service to California households,” said Mara Elliott, San Francisco City Attorney, in a statement. “My office will continue our fight for the rights of workers statewide. We hope other gig-economy companies will also do right by their workers.”

The judgment covers 308,000 workers who served the grocery delivery service between September 2015 and December 2020. Restitution will be divided based on the hours worked by each individual during that period. 

For some workers, payments could be in the thousands, covering expenses like fuel, vehicle maintenance, cell phones and personal protective equipment.

The settlement also includes $6 million in civil penalties, which will go toward California’s Consumer Protection Trust Fund and be used to enforce consumer protection laws.

Read: Biden administration revising rule on independent contractors

Read: AB5 law continues to perplex trucking industry — Taking the Hire Road

Instacart, however, had its gripes with the city’s allegations.

“We’re pleased to have reached an agreement with the city of San Diego,”  Instacart told Modern Shipper in an email statement. “Instacart has always properly classified shoppers as independent contractors, giving them the ability to set their own schedule and earn on their own terms. We remain committed to continuing to serve our customers across California while also protecting access to flexible earnings opportunities for Instacart shoppers.”

The company noted that the first-of-its-kind lawsuit was filed with the San Diego Superior Court before the pandemic began and also before California voters’ decision on AB5. It maintained the settlement was not an admission of wrongdoing.

While the settlement is undoubtedly a win for workers, the state still has a major hurdle in the form of Proposition 22. The 2020 ballot measure provided an exemption from AB5 specifically for gig economy companies like Uber, Lyft and Instacart.

Under Prop 22, the companies have been allowed to classify their workers as independent contractors. As such, they haven’t had to provide certain benefits like a minimum wage and overtime pay.

But a pair of state court rulings have pushed back on the limits to AB5, and there’s still a chance the law could be overturned by California’s Supreme Court.

Adding to the optimism is the Biden administration’s proposal that would reclassify independent contractors as employees at the federal level. The 184-page proposal does away with the controversial ABC classification test adopted under AB5. Instead, it includes six criteria that determine whether a worker is an employee or an independent contractor:

  • Worker’s control over the opportunity for profit or loss.
  • Extent of a worker’s investments.
  • Degree of permanence of the work relationship.
  • Extent of the employer’s control over the worker’s schedule.
  • Whether the work is integral to the business.
  • Worker’s level of skill and initiative.

Watch: Incentivizing the gig economy

The result of the proposed rule could be higher costs on certain companies that now need to provide their workers with the benefits of a full-time employee. Already, some discontent is brewing.

“Broadly speaking, I think the concern is that additional costs to companies like Uber and Lyft ultimately lead to higher prices for consumers, which will drive demand down for these services and ultimately reduce the need for as many workers,” Matt Spoke, CEO of Moves Financial, which handles payments for gig-economy companies, told FreightWaves.

But rideshare and food and grocery delivery companies won’t be the only ones affected. Stakeholders in the trucking and retail industries have also voiced concerns.

“We are disappointed this proposal seeks to undo the current rule which has brought needed clarity to the issue of independent contractor status,” said Nick Geale, president of workforce policy at American Trucking Associations.

The National Retail Federation (NRF) underscored its opposition as well.

“The changes being proposed by the Labor Department will significantly increase costs for businesses across all industries and further drive already rampant inflation,” said NRF Senior Vice President of Government Relations David French in a statement Tuesday. “NRF staunchly opposes a change in this important area of law, which is both unwarranted and unnecessary. This decision will only foster massive confusion, endless litigation, reduced innovation and fewer opportunities for employees and independent contractors alike.”

You may also like:

Lower court formally lifts injunction against AB5 in California trucking

Carriers might decide to risk pushing AB5 enforcement limits

Massachusetts court rejects Uber- and Lyft-backed effort to keep gig workers independent

Jack Daleo

Jack is a staff writer for FreightWaves and Modern Shipper covering topics like last mile delivery and e-commerce fulfillment. He studied at Northwestern University, majoring in journalism with a certificate in integrated marketing communications. Previously, Jack has written for Backpacker Magazine and enjoys travel, the outdoors, and all things basketball.