San Francisco Chronicle - (Sunday)
Delivery firm to hire drivers as employees
San Jose resident Lynne Richardson drives her Volkswagen Jetta around the South Bay to pick up cupcakes, flowers, wine, electronics and clothes from stores and bring them to consumers via Deliv, a Menlo Park startup that works with stores to get goods to people the same day they buy them.
An independent contractor, Richardson logs onto Deliv every Tuesday to request when she wants to work that week, selecting three-hour blocks that in her case total about 30 hours a week. She makes $14 an hour plus 50 cents a mile.
Starting in August, she’ll have similar tasks,
pay and scheduling but with a crucial difference: She will be an employee with benefits such as coverage for workers’ compensation and unemployment, paid sick leave, access to a retirement plan and health/ dental/vision coverage.
It’s a rare move by a gig economy company to change its employment model. And it’s sure to be closely watched, as California adjusts to last year’s groundbreaking state Supreme Court ruling called Dynamex that makes it harder for companies to claim that workers are independent contractors, and considers legislation that could force other companies to change how they classify their workers.
A pending bill, AB5, would codify Dynamex, extending its reach beyond wage issues to other labor code matters and exempting some professions, such as doctors, architects and hairstylists. Lawmakers, companies and unions are now thrashing out how that would work — with many gig enterprises, such as Uber and Lyft, seeking to be exempted.
Deliv’s change, which applies only to its workers in California, “is the best approach for all our stakeholders,” said Deliv CEO Daphne Carmeli. The company declined to say how much it would cost. It is setting up a California subsidiary to hire the couriers as employees.
Deliv appears to be the first prominent California gig company to change its business model — but it won’t be the last.
“I think it very well could be the start of a wave,” said Tiffanny Brosnan, a partner at Costa Mesa (Orange County) law firm Snell & Wilmer who specializes in employment law for management. Many clients have talked to her about how they might need to restructure operations in the wake of Dynamex, she said. “All kinds of companies have come to me that have traditionally used independent contractors; I’ve heard from real estate, homeinspection, trucking industries,” she said.
She advises them to consider whether the contractors are doing work central to their business — a core tenet of the Dynamex decision. “If so, it looks like you’ll have to classify them as employees or face (consequences),” she said she tells them. “Class actions are the biggest concern because they have the highest exposure” to large damage awards.
The Dynamex case revolves around delivery drivers, making it particularly pertinent to Deliv.
Beth Ross, a San Francisco attorney who has represented workers such as FedEx and Amazon drivers in employment classification cases, noted that mid-size and smaller companies often “do not have the legal budget to pay the cost of (lawsuit) damages or (government) enforcement actions,” and thus “have no choice but to reclassify. The liability risks are so huge.”
Under California statute, the clients of a company found to have misclassified contractors can face liability, Ross said, speculating that pressure from stores that use its service may have motivated Deliv.
In fact, Deliv’s Carmeli said, “We’ve had retailers and business partners inquiring more and more lately about how and if we can support employee drivers” — as well as having drivers ask to become employees.
Deliv, which operates in 1,400 cities in 35 metropolitan markets nationwide, works with Home Depot, Best Buy and Macy’s as well as smaller companies. Retailers pay it for deliveries and choose whether to pass some or all of that cost along to customers.
Deliv’s business of scheduled deliveries works well with an employment model, Carmeli said, because it already requires workers to set their time in advance as multi-hour blocks. Unlike Uber, Lyft, Postmates, DoorDash and other on-demand services, its couriers do not log in and log out at will.
Deliv’s California workers will be paid an hourly base rate of at least minimum wage plus the IRS mileage reimbursement, slated to go to up to 58 cents next month. Deliv declined to say how many drivers it has in California and whether it will have the same number once they are employees, but said all its contractors are invited to apply to become employee drivers.
Most of its couriers work 10 to 25 hours a week. Only full-time workers — defined as those putting in at least 30 hours a week — will receive company subsidies for health insurance, probably for about half the cost, Carmeli said; they will also get stock options and paid time off. Part-time drivers will have access to insurance at group rates, substantially lower than if they bought it individually.
“The cool, cool stuff we’re excited to do is to offer benefits,” she said, listing 401(k) retirement plans, flexible spending accounts, family leave, disability and medical/ vision/dental and even pet insurance.
While providing benefits and withholding for Social Security and other safety net programs will cost Deliv more, Carmeli thinks that the company will receive economic advantages such as moreefficient drivers thanks to more training and management, lower recruiting costs and less turnover. The Teamsters would like to organize the new Deliv employees, said Doug Bloch, political director for Teamsters Joint Council 7. United Parcel Service, one of Deliv’s major investors, has the Teamster’s — and the nation’s — largest collective bargaining agreement, covering 250,000 employees.
“Dynamex is working,” Bloch said. “Deliv is stepping up to create a new model in a changing regulatory environment. We’d like to partner with them to make sure that model is a success for the workers and the company.”
Deliv did not immediately respond to requests for comment on possible unionization.
Uber and Lyft, the two biggest gig companies in AB5’s crosshairs, both said that their business models, as well as drivers’ stated preferences, rely on flexibility, which they said would be hard to achieve while also meeting requirements such as mandated meal/rest breaks and overtime. Both said they’d likely need to insist that drivers work for only one service, and limit how many drivers work at a time, two changes that would curb drivers’ earnings potential.
The ride-hailing rivals have joined forces to push for a hybrid model that would include some benefits, a guaranteed wage floor and an association to speak for drivers, who would remain independent contractors.
“Classifying drivers as employees could cause Lyft to limit drivers’ hours and require shifts, particularly for those that drive part-time,” said Lyft spokesman Adrian Durbin. “Additionally, many drivers may earn less than they currently do, earning a flat rate instead of enjoying the higher earning opportunities that the current model allows.”
Richardson, who’s worked three years for Deliv, said she loves driving around and discovering new neighborhoods and visiting “fabulous places” like the campuses of Facebook, Google and Stanford.
When the employment changeover happens, she’s most looking forward to getting pet insurance for her dog and cat.
“There are a lot of pluses to being an employee,” she said. “I can’t wait to see how it all works out.”