A Blog by Jonathan Low

 

Jun 25, 2015

The Reason Instacart Is Turning Shoppers Into Employees

Economics 101: as more competitors enter your market, your costs rise as you attempt to differentiate your service. The sharing economy meme was nice while it lasted, but really, it was about using technology to aggregate cheap labor - and even the Chinese have realized there are limits to that model. JL

Richard Waters reports in the Financial Times:

The change in status had been made because Instacart wants to train and supervise its shoppers to improve their performance. Pressure on companies in the “sharing economy” to improve their service levels has led others to take a similar step.
The prospect that “sharing economy” companies will avoid the higher cost structures of traditional businesses took another hit on Monday as grocery delivery service Instacart said it had started to convert its 7,000-strong army of contractors to part-time employees.The delivery company said that reclassifying its workers would lead to higher costs but that the better service quality it hoped for would be good for the business in the long run.
Instacart’s move comes days after it emerged that car sharing app Uber had lost a case before California’s labour commissioner, which ruled that one of its drivers was entitled to the same benefits as an employee.
That case, though limited in its direct impact, comes ahead of a full class action lawsuit brought by drivers arguing for similar treatment.
As online marketplaces that take a cut of transactions they arrange, Instacart and Uber are part of a wave of companies whose high gross profit margins make them highly popular with Silicon Valley’s venture capitalists.
Their business models could be threatened, however, if they are required to take on large numbers of workers to deliver their services.
Instacart said contractors who were acting as shoppers in stores in Boston and Chicago had been reclassified as part-time employees on Monday, with the change set to be extended to other cities. The shoppers are stationed in stores like Whole Foods, filling customers’ orders and taking them to the checkout for an Instacart driver to deliver.
The change in status had been made because Instacart wants to train and supervise its shoppers to improve their performance, a spokesman for the company said.
Under US law, determining whether a worker is entitled to be treated as an employee depends on a complicated list of factors, with variations between the type of job involved and different state laws.
“There are few, if any, deciding factors,” said Jonathan Handel, a lecturer at USC Gould law school. “[Instacart] may view training and supervision as the straw that broke the camel’s back.”Pressure on companies in the “sharing economy” to improve their service levels has led others to take a similar step.
Marcela Sapone, chief executive of Hello Alfred, which stations workers in customers’ homes to deal with things like grocery deliveries, said her company gave its workers employee status last year because of its requirements for training and supervision.
Instacart said that as employees, shoppers would work between 20-30 hours a week — below the threshold at which US companies have to pay extra benefits.
However, it said it would face new costs that include workers’ compensation as well as payroll deductions that cover things like Medicare and social security

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