clock menu more-arrow no yes

As Uber Feels Regulatory Heat, Instacart Reclassifies Some Contractors as Employees

Is this the beginning of a trend?

Instacart

Is this the beginning of a trend?

Same-day delivery company Instacart announced Monday that it had started to reclassify some of its giant workforce as part-time employees in a bid to improve the selection of food delivered to its customers.

But the announcement also comes as regulatory agencies are scrutinizing companies such as Uber and Lyft, which have classified their massive workforces as contractors, allowing these venture-backed heavyweights to avoid the costs of payroll taxes and employee benefits.

“When you look at the difficulty of shopping, picking and delivering items such as fruit or eggs that need to be carefully selected, you realize that grocery shopping can be complicated,” CEO Apoorva Mehta said in a press release. “For this reason, we want to provide supervision and training, which can only be done with employees.”

Instacart has been testing the move in Boston, where it has allowed the contractors who pick and pack the customer orders the option to switch to part-time employee status. As of today, it is making the same switch in Chicago and expects about three-quarters of its personal shoppers to make the switch based on the Boston pilot test.

The change means that Instacart’s newly-minted employees will qualify for benefits such as workers’ compensation in the event of an on-the-job injury and unemployment benefits if they are laid off. They will also receive more training as well as pay above minimum wage, though the company declined to provide more details on compensation.

Instacart says it will roll out the option to more of the 16 cities it operates in coming months. Instacart also has contractors who work as drivers; they haven’t been given this option.

Mehta told Bloomberg that personal shoppers who don’t want to become employees will have the option to become Instacart drivers, who will remain contractors. It’s not clear what will happen to those personal shoppers who do not want to become employees or become delivery drivers.

The reclassification will undoubtedly cut into Instacart’s profit margins, but the startup should have a cushion: It has raised $275 million from investors who are fascinated with the company’s rapid growth. Instacart generates revenue from delivery fees and by taking a cut of a grocery store’s sales through the service.

The move comes as Uber is appealing a ruling by the California Labor Board that an Uber driver should be classified as an employee. While “this is a minor ruling that applies to only one person … it could become more broadly applied if Uber continues to appeal,” my colleague Carmel DeAmicis reported recently. Part of the reason Uber has been able to raise billions of dollars is that it is essentially a software dispatching service that has gotten away with treating Uber drivers as contractors.

Mehta told Bloomberg in an interview that regulatory pressure did not drive the decision, “but we are in this awkward phase where we have millions of people working in this new economy, and the laws are not clearly defined,” he said. “It would be helpful for everyone in this space for there to be clear regulation.”

This story has been updated with details about the benefits that Instacart contractors-turned-employees will receive.

This article originally appeared on Recode.net.