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(Reuters) – Delivery service Gopuff has been fined $6.2 million by the state of Massachusetts for improperly classifying nearly 1,000 drivers as independent contractors rather than employees, who are more costly for companies.
Massachusetts Attorney General Andrea Campbell, a Democrat, announced the fines on Thursday as Softbank (OTC:SFTBY) Group Corp-backed Gopuff prepares for a U.S. initial public offering.
Worker classification is a crucial issue for app-based services such as Uber (NYSE:UBER), Lyft (NASDAQ:LYFT) and Grubhub that rely on independent contractors to control costs. Hiring contractors can be 30% cheaper than having employees, who are entitled to an array of benefits and legal protections.
Philadelphia-based Gopuff operates in hundreds of U.S. cities and Britain. A Gopuff spokesperson said the company strongly disagrees with the fines and intends to appeal them.
“Gopuff is focused on giving people the chance to earn with us in whichever way makes the most sense for them,” the spokesperson said.
Campbell’s office said it began investigating Gopuff after receiving complaints against the company from former and current workers.
Massachusetts law imposes a high bar for proving that workers are independent contractors. That includes showing workers are not under a company’s direct control, operate independent businesses and perform work outside of a company’s normal course of business.
Campbell said that standard did not fit Gopuff drivers and the company failed to give drivers paystubs and provide them with paid sick leave that state law requires for employees.
“When employers misclassify their workers, they deprive them of basic employee protections and benefits, and create an unfair playing field for other law-abiding companies,” Campbell said in a statement.
Uber and subsidiary Postmates are currently challenging a California worker classification law similar to the one in Massachusetts, which they say is unconstitutional because it was targeted at app-based transportation services.
(This story has been refiled to add state’s name in paragraph 1)
