Who is stuck if gig economy firm goes down?
The warning signs began popping up a year ago.
Michaela Azzopardi, a graduate student and part-time babysitter, noticed that the direct deposit payments for babysitting jobs she completed in early 2016 — which she booked through San Francisco online child care agency Wondersitter — were landing in her bank account two weeks later than usual.
As the months went on, the payments arrived even later, delayed by a month initially, then longer. In May, they stopped altogether. Azzopardi says she has yet to be paid more than $3,000 she earned between February and June.
“I was patient and understanding in the beginning,” said Azzopardi, 23, who is studying speech therapy at San Francisco State Universi-
ty and relied on Wondersitter jobs for the bulk of her income. “Then they stopped responding to me. Work started getting depressing. I wasn’t happy going to work, and I loved working with these kids.”
Azzopardi’s concerns are echoed by more than 100 sitters in a dozen cities. Their complaints are almost identical: They have not been paid for jobs going back several months, and their calls and emails to the company’s representatives have gone unanswered. The sitters are collectively owed about $85,000, according to tabulations compiled by the sitters, who participate in a Facebook group. Frustrated and angry, many are seeking recourse in small claims court, and a dozen have filed unpaid wage claims with the state Labor Commissioner’s office.
On the other end of the equation are parents who say they paid Wondersitter in advance for sitting jobs that were never completed. As the broker, Wondersitter would take a percentage of the parents’ payments before then paying the sitters, who worked as independent contractors.
This month, Wondersitter co-founder Rose Titcomb sought to place the company in involuntary Chapter 7 bankruptcy, around the time the company’s website went dark. Calls and emails to Titcomb, her attorney and cofounder Chris Franklin were not returned. The San Francisco District Attorney’s office is investigating the company but declined to provide details other than to confirm the inquiry is being conducted.
It is unclear who backed Wondersitter financially. The company, founded in 1998 under the name Core Group, is not on Crunchbase, which compiles information on private companies that have significant venture capital funding. Nor does it appear in the Securities and Exchange Commission database of private companies that have sought outside investment through securities offerings.
Wondersitter is hardly unique in relying on a vast network of contractors. Babysitters, construction workers and many other occupations — Uber drivers and Task-Rabbit helpers are among the most recent — have long been classified as independent contractors, a designation that makes it harder but not impossible to recoup unpaid wages if a company goes bankrupt.
But with the proliferation of the gig economy, the collapse of Wondersitter — and the questions it raises about who is left holding its debt — can be viewed through a new lens, experts said. As more workers turn to part-time contract jobs to piece together a living, they are more removed from the central operations of their employer, making abrupt financial insolvency more unexpected.
“If you work for a company, you often have some idea how things are going,” said Jared Ellias, a UC Hastings law professor who teaches bankruptcy and corporate law. “You may not know everything, but you have a clue. If you work in the gig economy, you have no idea what’s going on in your employer. You’re not even an employee in the meaning of the law. This does feel like something that could afflict people in the gig economy in a unique way because it’s going to hit them by surprise.”
Up to 30 percent of the working-age population in the United States and Europe engage in some form of independent work, according to a 2016 report by the McKinsey Global Institute.
If the sitters were employees, they would have priority as secured creditors in recovering money in bankruptcy proceedings. Instead, the sitters and the parents are both unsecured creditors, and will see money only if there are any assets left over, Ellias said.
However, contractors do have some rights under bankruptcy law to assert wage claims. The sitters may be able to recover payments of up to $12,850 per person if the sitting jobs were performed during the 180 days before the bankruptcy petition was filed, said Lynn LoPucki, a UCLA law professor who specializes in bankruptcy.
The bankruptcy petition was filed Aug. 2.
There is scant precedent for how contractors can seek payment when gig economy companies go out of business, said Arun Sundararajan, a professor at NYU Stern School of Business who has written a book on the sharing economy.
“We haven’t had these platforms around a very long time,” he said. “I’m not aware of any overarching law or protection that says, ‘This is what happens to independent contractors in every case of bankruptcy.’ ”
The most high-profile examples of gig economy firms that have folded are Homejoy, a San Francisco online agency for home cleaning services, and Sidecar, an early pioneer of the on-demand ride services that most people now associate with Uber and Lyft.
Homejoy shut down in 2015 and entered bankruptcy proceedings, after which portions of the company’s assets, employees and operations were acquired by other firms. Sidecar assets and some of its employees were acquired by General Motors.
Gig economy companies sometimes run into problems over the classification of the people who work for them. Prior to Homejoy’s bankruptcy, six home cleaners filed class-action lawsuits against the company that sought unpaid wages, benefits, payroll taxes and WARN Act claims on the basis that they should have been classified as employees instead of contractors. As a result, more than 6,600 contract home cleaners are expected to receive $60 each — with the six named plaintiffs getting $250 each, according to a proposed plan filed in Bankruptcy Court in June. Each of the law firms representing the home cleaners will get about $13,000 under the terms of the agreement.
Some of Wondersitter’s competitors are taking notice of the situation. UrbanSitter, a San Francisco child care service, has been offering a $75 credit for parents who paid for Wondersitter packages but did not get to use them. The packages, known as “Wonder-dollars,” offered parents a discount if they paid ahead of time for sitting services. About 100 parents have received the credit with Urban-Sitter — some were out as much as $750 — and 13 parents have redeemed it, said UrbanSitter CEO Lynn Perkins. Unlike Wondersitter, UrbanSitter does not take a percentage of sitters’ earnings, but rather charges parents a subscription fee to use the service.
Nicole Conway, 37, of San Francisco said she bought a $1,000 Wondersitter package this year for her son, Oliver. She has at least $600 worth of child care services left on it, and may try to recover the money from her credit card company.
“The worst part is that it was a really good service that we used a lot,” Conway said. “We met a lot of good sitters through it, it was a really convenient service. It’s more of a bummer to not have the service than the money.”