Based on numerous reports, such as this one[1], Instacart Shoppers are currently being classified by the company as independent contractors. Apparently, Instac

Based on numerous reports, such as this one[1], Instacart Shoppers are currently being classified by the company as independent contractors. Apparently, Instacart Shoppers are trained, set a work schedule with the company, have their work activities controlled through an app, and even wear Instacart clothing. While classification involves numerous factors, I personally don't see how any of this passes even one of the most fundamental, the "nature and degree of control by the employer" test. Other on-demand companies that use independent contractor classification are facing class action lawsuits [2][3] over classification and given the general trends in the courts[4], there's little doubt we will continue to see the number of class actions alleging misclassification grow. Putting aside the costs of defending and settling a class action, or paying damages in an adverse ruling, the real question for investors in any on-demand company that currently relies on independent contractor classification is what employee classification would do to the economics of the business. Think of this as an "employee stress test." In some cases, on-demand companies are using independent contract classification to shift costs that have traditionally been borne by competitors in their markets, giving them an "unfair" pricing advantage. If they are found to be misclassifying their workers, their ability to compete on price will be affected. In other cases, companies charge a premium for a service that offers convenience. If they are found to be misclassifying their workers and are forced to pay their workers as employees, the premium charged to consumers would either have to increase or the company would need to be able to live on reduced margins. The effects of reclassification would be particularly significant for transportation companies. For example, in California, under Labor Code Section 2802, employers are on the hook for expenditures or losses incurred by their employees "in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer." This includes expenditures related to travel/mileage. It's going to be very interesting in the coming years to see which of these on-demand companies continue to thrive because I personally think it's inevitable that many of them are going to be forced to reclassify their workers as employees. I suspect some investors aren't giving this enough consideration in their due diligence. [1] http://news.morningstar.com/all/market-watch/TDJNMW2014110765/update-delivery-startups-echo-dot-com-boom-and-bust.aspx http://news.morningstar.com/all/market-watch/TDJNMW201411076... [2] http://uberlawsuit.com/ http://uberlawsuit.com/ [3] http://www.sfgate.com/business/article/Handy-com-housecleaners-lawsuit-could-rock-5891672.php http://www.sfgate.com/business/article/Handy-com-housecleane... [4] http://www.businessweek.com/articles/2014-10-16/fedex-ground-says-its-drivers-arent-employees-dot-the-courts-will-decide http://www.businessweek.com/articles/2014-10-16/fedex-ground...