From the Independent Contractor Compliance and Misclassification Legal Blog, Richard Reibstein discusses Homejoy’s decision to close because of lawsuits alleging misclassification of employees. Richard writes:
“Earlier today, Carmel DeAmicis of Re/code reported that Homejoy, the home cleaning start-up that uses independent contractors as their home cleaners, was closing down its operations due to four misclassification lawsuits filed against it. This is not the first company in the sharing economy using on-demand contract workers to alter its business model or shut down operations – and it will not be the last. According to the Re/code article, Homejoy was unable to continue to raise money because “the on-demand space has become a riskier bet for investors in a short amount of time.” This news is likely to propel many other tech start-ups using independent contractors as service providers to reexamine their use of 1099ers and consider ways to enhance their independent contractor compliance.
Evidently, Homejoy spent more time on the operations and revenues side and less time on the compliance side of its business. That approach can cause investors to think twice about pouring financial resources into a tech start-up – and apparently that is what occurred today with this home cleaning firm.
Despite the current crackdown on the misuse of independent contractors and the recent Interpretation issued by the Administrator of the Wage and Hour Division of the U.S. Department of Labor, the use of independent contractors is still a viable means to supplement a company’s workforce or to structure a business model. Only one state essentially prohibits the use of independent contractors, and no bill introduced in Congress has proposed a prohibition on the use of independent contractors. All a business is required to do is classify independent contractors correctly or, conversely, not misclassify employees as independent contractors. In other words, compliance is the key to sustained success when a company’s operations are humming and revenues are favorable….”