Monday, October 20, 2014

New “Sharing Economy” and Delivery Service Apps Raise Interesting New Employment Law Questions

Northern California is the heart of app-based innovation. We are a testing ground for new business models and services that have only recently been made possible by the sudden prevalence of smartphones. Online businesses that are “disrupting” traditional marketplaces have been struggling to comply with (or change, or escape the application of) long-established legal regimes – think of AirBnB and hotel regulations, or Uber and taxi and limousine regulations. The area of employment law will be fertile ground for uncertainty and conflict as new business models come up against employment laws.

Many apps are geared toward making goods or services available whenever and wherever the consumer wants them:  Uber, Lyft, Summon, SideCar, and Flywheel make it easy to request a nearby car to pick you up wherever you happen to be; Sprig and Spoonrocket will deliver a hot meal to your door in a matter of minutes; Instacart will do your grocery shopping and deliver your bags within a one-hour window; and TaskRabbit will send someone to help you do just about anything.

On the other side of the equation – the production side – apps sometimes aim to make it easy for people to provide services for money. The “Taskers” who perform tasks via TaskRabbit can bid on the jobs they want to perform, and TaskRabbit advertises itself as helping enterprising business-people reach customers more easily. According to “UberX” drivers who have driven me around town, they can choose when and where to work, and they simply use their own personal vehicles when performing work for Uber. Prior to the existence of this technology, the barriers to finding someone who wanted to pay you for giving them a ride, washing their windows, packing up their moving boxes, or simply running their errands would have been mostly insurmountable.

How do the apps make money? Some portray themselves as “platforms” that merely bring buyers and sellers together and take a slice of the transaction as a middleman. TaskRabbit charges “a 20% service fee on each task so we can provide 24/7 Member Services support, full insurance on every task and our satisfaction guarantee,” according to their website. Others seem more like traditional delivery services, like the Pizza Huts or Little Caesars of the pre-internet era. And others may not be making any money at all – a common piece of wisdom in NorCal is that it doesn’t matter whether a new app makes money, what matters is how many users it can attract.

In order to gain users, however, an app has to provide a reliable service. If you decide to order an Uber, but you open your app and see that there are no available cars nearby, you’ll use a competitor (or you might even hail a cab!). Likewise, if you decide to test out Sprig or Spoonrocket for dinner (or one of the 5 new liquor delivery apps servicing Los Angeles) but you’re told that the wait-time will be an hour, you might give up on the app altogether. So the app has to be sure there’s a willing fleet of drivers, dinner deliverers, Taskers, or what-have-you to ensure that the promise of near-instant service is kept.

So who are the workers who are providing these services? And how are they getting paid? One predictable dispute is whether certain workers are employees or independent contractors – such cases are pending against Uber and Lyft. See Cotter v. Lyft, Inc., 13-cv-4065-VC (N.D. Cal.); O’Connor v. Uber Technologies, Inc., 13-cv-3826-EMC.

Lawsuits have been filed challenging the manner in which tips, or “delivery charges,” are passed on to the workers. In the Uber case just mentioned, the Court left the door open for a claim that Uber failed to pass along the full gratuity advertised as part of the fare. See O’Connor, 13-cv-3826-EMC, 2014 WL 4382889 (Sept. 4, 2014). First, the Court rejected a couple of theories offered by the Plaintiffs – that there was an “implied in fact” contract for payment of the full gratuity to the drivers, and that Uber was engaged in “tortious interference with prospective economic advantage.” 

However, the Court held that the Plaintiffs could attempt to prove a violation of the California Labor Code section on gratuities (§ 351), which can be enforced by a private plaintiff as the basis for a violation of the Unfair Competition Law.

In another recent tipping case against Domino’s Pizza, which uses an app to allow customers to place orders, a group of pizza delivery drivers brought a proposed class action, arguing that the manner in which Domino’s charges its $2.50 delivery charge per order violates the Massachusetts Tips Act. See Carpaneda v. Domino’s Pizza, Inc., 991 F. Supp. 2d 270 (D. Mass. 2014). In app orders (as well as online orders), the price charged to the customer is displayed as including: (i) the food and beverage price; (ii) a $2.50 delivery charge; and (iii) taxes. The drivers, who receive only $3/hour aside from tips, argued that the $2.50 delivery charge should be passed on to them, given that reasonable customers would assume that the delivery charge was a tip, and would not, therefore, provide any additional tip. The app did include a disclaimer stating that the delivery charge is not a gratuity, but the Court denied Domino’s motion to dismiss the case, ruling that a jury could find that a reasonable customer would assume the delivery charge was a tip.

The services provided by the new apps are amazing, and they may provide a much-needed new source of employment, but vigilance will be necessary to ensure that as apps dizzily expand, they comply with the wage laws that protect workers.

If you have a concern about your work with one of these new services, contact Bryan Schwartz Law for more information.


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