Instacart to pay $46.5 million settlement over gig worker dispute

Instacart has agreed to pay a $46.5 million under a settlement with the city of San Diego regarding a claim that workers in California were improperly classified as independent contractors rather than as employees.

The matter stems from a lawsuit filed in September 2019 by the San Diego Attorney’s Office against Instacart for not fully compensating grocery delivery staff as employees but instead as independent contractors, who tend to receive fewer worker benefits and protections.

San Francisco-based Instacart, the nation’s largest third-party grocery delivery provider, maintained through the litigation that it correctly classified its California personal shoppers — who pick, pack and deliver orders — as independent contractors and noted that the settlement reflects no admission of wrongdoing. 

The proposed judgment against Instacart, announced this week and filed with the San Diego Superior Court, covers about 308,000 people who worked for the company from September 2015 through December 2020, the San Diego Attorney’s Office said. Restitution funds will be divided based on the number of hours each person worked over that time period. The settlement includes more than $6 million in civil penalties that will go into a Consumer Protection Trust Fund to be used for the enforcement of consumer protection laws.

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“We’re pleased to have reached an agreement with the City Attorney of San Diego,” Instacart said in a 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.”

Instacart noted that the settlement will not impact the company's operations in California.

In its suit, the San Diego Attorney alleged that workers employed by Instacart held responsibility for maintaining and fueling their personal vehicles, using their own phones and paying for other equipment, including COVID-19 personal protective equipment. The settlement covers those and other costs that could be categorized and measured. For the most active workers, individual restitution payments will total in the thousands of dollars, though amounts will vary based on the number of hours worked. The city attorney’s office noted that Instacart launched its service in the city and county of San Diego in mid-2016 and has a strong presence in the market.

“We are pleased to get justice for these delivery workers, who, at the height of COVID-19, provided an invaluable service to California households,” City Attorney Mara Elliott stated. “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.”

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Instacart said the settlement will have no impact on its California operations. “We remain committed to continuing to serve our customers across California while also protecting access to flexible earnings opportunities for Instacart shoppers,” the company commented in an email.

The legal dispute reflects ongoing debate over the classification of gig economy workers, such delivery personnel for services such as Instacart, DoorDash and Uber Eats and drivers for ride-share companies like Uber and Lyft.

In the email, Instacart noted that the San Diego City Attorney of San Diego filed its suit against the company before California voters approved Proposition 22 in November 2020. The ballot measure, supported by companies such as Instacart, Uber, Lyft and DoorDash, reaffirmed the independent contractor status of app-based gig economy workers and offset California Assembly Bill 5, signed into law in mid-September 2019, which had classified them as employees receiving full benefits and labor protections.

Assembly Bill 5 had codified a 2018 California Supreme Court decision, Dynamex v. Superior Court, into law. In that case, the court ruled that most wage-earning workers are employees and should be classified that way, with the burden of proof for designating personnel as independent contractors resting with the employer. California’s legislation extended that decision to all workers, entitling them to be classified as employees with the standard labor protections, such as minimum wage laws, sick leave, and unemployment and workers' compensation benefits, which don’t apply to independent contractors.

Worker classification has remained a particularly divisive issue amid the burgeoning gig economy. Yesterday, the U.S. Department of Labor said it will publish a Notice of Proposed Rulemaking on Oct. 13 to help employers and workers gauge whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).

According to the Labor Department, the proposed rule would offer guidance on classifying workers and help combat employee misclassification through a “framework more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors” under the FLSA.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” Secretary of Labor Marty Walsh said in a statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”