D.C. and Minnesota File Worker Classification Suits Against Shipt

By: Paul Jones

The District of Columbia and Minnesota have filed suits against online grocery shopping and delivery company Shipt Inc., alleging that the company avoids payroll taxes and other obligations by improperly classifying its workers as independent contractors.

In the lawsuits, District of Columbia v. Shipt Inc. and State of Minnesota v. Shipt Inc., the attorneys general argue that the company's gig workers are Shipt employees.

“Employers who misclassify workers . . . harm the public by evading the employers' duty to pay into government programs that are funded by payroll taxes, which are calculated as a percentage of wages paid by employers to employees,” according to the District suit, which was filed October 24. Those taxes include the District’s paid family leave tax, it said, arguing that “employers evade paying these payroll taxes on misclassified workers altogether, shorting the public fisc and obtaining an illegal labor cost advantage over their law-abiding competitors.”

Both suits seek to require Shipt to classify its delivery workers — which the company calls shoppers — as employees. They also seek back payments they claim Shipt owes for minimum wages and sick leave and penalties for violating employment laws.

In an October 24 release, District of Columbia Attorney General Karl Racine (D) said that companies like Shipt and others in the gig industry have built their businesses on mislabeling their workforce as independent contractors, which undermines the traditional systems set up to protect employees, including minimum wage requirements, paid leave, and assistance with business expenses.

“We’re using all our authority to level the playing field and hold Shipt accountable for trying to cheat DC workers," Racine said.

Minnesota's suit was filed October 27. The office of Minnesota Attorney General Keith Ellison (D) argued in a release that Shipt can’t call its workers contractors because they lack the autonomy of true independent contractors and they function like an employee workforce.

“The Attorney General’s investigation into Shipt’s employment practices revealed that, despite Shipt’s public claims that its ‘Shoppers’ are independent contractors who run their own businesses, Shipt controls virtually every facet of a Shopper’s work,” the release said. It added that workers themselves cannot sue over the issue because Shipt’s contracts bar class action suits and include a binding arbitration agreement.

In a press statement provided to Tax Notes November 2, Shipt spokeswoman Evangeline George countered that “shoppers with Shipt are independent contractors, and the flexibility that comes with being an independent contractor is the primary reason Shipt Shoppers choose to earn on our platform.”

“We strongly disagree with the action taken by the Attorney General for the District,” George said. “We’ll continue advocating for Shoppers and the opportunity to earn flexible income across the D.C. area.”

The suits are the latest legal challenges to the gig economy’s classification of workers, an issue that has gained attention and generated litigation as the number of people performing gig work has grown.

Notably, California has been embroiled in a yearslong fight with companies such as Uber and Lyft over the classification of their workers. Ride-hailing companies in 2020 managed to pass a ballot measure, Proposition 22, which established that the companies' drivers would be treated as independent contractors but also would be provided some protections and guarantees. Unions successfully sued to overturn the proposition, and an appeal of that ruling is pending.

The U.S. Department of Labor has also weighed in, proposing new rules last month that would classify many independent contractors, including gig workers, as employees.

The complaint in District of Columbia v. Shipt Inc. was submitted to the Superior Court for the District of Columbia and was assigned Case No. 2022-4909. No case number is yet available from Hennepin County District Court for the complaint in State of Minnesota v. Shipt Inc.