DoorDash Tests Gig-Economy Model With New Hourly Wage Option

  • Hourly pay could point to employee status
  • Options akin to contractor relationships, DoorDash says

rare move by DoorDash Inc. to offer hourly pay could make its drivers look more like employees under federal labor laws, according to employment attorneys, potentially prompting fresh legal questions about the independent contractor model’s use in the gig-economy.

Tech companies that dominate the app-based industry, including DoorDash, classify the workers that provide their services as independent contractors, who are considered to be in business for themselves, as opposed to employees who receive protections under federal employment laws.

If a court or federal agency was convinced the new pay option demonstrates that DoorDash has a significant amount of control over its drivers—a key factor when determining whether a worker is a contractor or an employee—it could threaten the business model foundational to the gig economy.

“I think one can argue it’s another example of DoorDash’s ability to unilaterally change the terms and conditions of its relationship with these workers. And therefore it’s going to be deemed as a restraint on entrepreneurial opportunity,” said Eric Su, a partner at Crowell & Moring in New York.

“From the most basic level one of the factors in the exercise of control often referenced will be the ability for an employee to negotiate their own rates,” he explained. He said that the parameters for the two pay options “are established by DoorDash themselves,” and aren’t negotiated by the drivers.

DoorDash says the opposite, suggesting its new payment option actually provides drivers with more choices, and gives them more control over how they’re paid, conditions that point to contractor status under the law.

“We’re constantly engaging with Dashers, and we know that flexibility in how and when they work is one of the main reasons they choose to earn supplemental income with DoorDash,” Kelsey Desloover, Future of Work policy development director at DoorDash, said in an emailed statement.

We’re proud to give Dashers even more control over their work and how they earn as independent contractors by providing them with the option to choose between two distinct earning modes—Earn by Time and Earn Per Offer.”

Classification Fight

Worker classification has become one of the most contentious debates in the employment landscape, as advocates and unions contend that companies are exploiting the independent contractor model to avoid the liabilities and protections that come along with hiring a full employee.

When evaluating whether a worker should be treated as an independent contractor or an employee, courts and federal regulators typically use a multi-step test that considers different aspects of the working relationship, like how much control the worker has over their working conditions.

“If someone is being paid based on a project or based on something other than an hourly wage, that might look less like an employee and more of a per project, per deal, per transaction kind of arrangement,” said Michael Schmidt, a management-side attorney at Cozen O’Connor.

Guidance from both the Internal Revenue Service and the DOL note that workers classified as “employees” are usually paid hourly, and that hourly pay can point to an employment relationship.

“If an individual is paid a regular salary or is paid by the hour, week, or month, that may indicate the existence of an employment relationship,” guidance from DOL’s Office of Federal Contract Compliance Programs says.

The change from DoorDash also lands as the Biden administration is working to finalize a rule that will outline its approach to determining independent contractor status under federal wage laws.

While the Department of Labor’s proposed new test says that no single factor in the working relationship is dispositive, the proposed rulemaking released last year states that arrangements where workers are “paid an hourly or flat rate” may suggest employee status.

Backing the Model

Along with DoorDash itself, management attorneys argue the company’s policy change could actually reinforce the company’s argument that its drivers are independent contractors.

The key is that DoorDash gave drivers the option to choose whether to opt into hourly pay or to continue being paid per-delivery, attorneys say.

“It’s certainly evidence that DoorDash is looking to be flexible with their arrangements and allows the individual workers an opportunity to decide how they want to get paid,” Schmidt said. “The extent that they get to negotiate or they get to have some say in how they’re compensated, that in some respects, lends itself more toward independent contractor status than employee status.”

Jeffrey Ruzal, an attorney with Epstein Becker Green, added that “it’s the worker that can elect to change the pay methodology and have the flexibility to do so on any given day or any given week,” which “tends to support an independent contractor relationship.”

“I think worker advocates and management side business advocates will be making competing arguments about this new development. How a court or Department of Labor will interpret it, I think, is too early to say, but I can see potential cogent arguments on each side,” he said.

Whether DoorDash’s move will inspire or discourage other gig companies from following suit depends in part on the DOL’s appetite for strictly enforcing independent contractor rules within the industry.

Regulators have so far been unwilling to fight powerful tech giants over worker classification, said Celine McNicholas, counsel at the Economic Policy Institute. She said gig companies should already be treating their drivers as employees, but have “decided they are unwilling to comply with the law.”

“That is the business model that they have employed out of the gate, and they have gotten away with it,” she added. “There hasn’t been federal enforcement. Where is the DOL lawsuit against these companies? That is how change is made in big companies that are skirting regulations or violating the law.”

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