Minnesota Attorney General Keith Ellison on Thursday filed suit against Shipt, the grocery delivery business of Target Corp., for allegedly cheating workers of benefits and rights by classifying them as independent contractors.
Workers who are not classified as company employees don't qualify for many benefits that are seen as normal in a workplace, including overtime pay and paid sick leave, Ellison said.
"Shipt is taking advantage of Minnesotans to enrich itself while leaving workers to fend for themselves," Ellison said. "Unlike other employees, these workers have no clarity on how much they will be paid day-to-day, and they often don't receive the minimum wage and overtime they're entitled to."
Companies that classify employees as contractors also evade contributing payroll taxes that help fund government. Ellison announced the suit a few hours after a similar action by Washington D.C. Attorney General Karl Racine.
In a statement, Shipt said it would fight both lawsuits. The company employs about 300,000 people who choose when to take shopping and delivery assignments from Shipt.
"Shoppers with Shipt are independent contractors, and the flexibility that comes with being an independent contractor is the primary reason Shipt Shoppers choose to earn on our platform," Evangeline George, a spokeswoman for Shipt, said in a statement.
The actions against Shipt come after Instacart, the nation's No. 2 grocery delivery firm after Walmart, agreed earlier this month to pay $46.5 million to settle a lawsuit filed by the San Diego City Attorney's Office for improperly classifying its workers.
App-based service providers for years have fought with workers, labor activists and government officials over whether they can treat employees as freelancers or contractors, or whether they need to be classified as on-staff part-time or full-time employees.
Two years ago, California voters approved a ballot initiative that excluded so-called gig workers from many employee rights under state law there. But a court later ruled the proposition violated the state constitution.
This summer, a bipartisan group in the U.S. House proposed a bill that would let businesses like Shipt to continue classifying gig workers as independent contractors but add some legal protections for the workers. And earlier this month, the Labor Department proposed new guidance on worker classification that would reverse Trump-era standards that gave companies more leeway.
Shipt workers use their smartphones to receive customer orders. They then shop at stores and deliver the products, typically within a short time window. Shipt workers use their own cars to make deliveries.
They are paid based on an algorithm that takes into account the cost of the order, the estimated drive time, and other factors. They also can get tips from customers.
Shipt, which was purchased by Target in 2017, exploded in growth in 2020 when government stay-home orders in the pandemic led more people to experiment with grocery delivery services.
Target reported in August that its same-day services, which includes deliveries from Shipt, grew 11% this summer, on top of more than 55% of growth last year.
Earlier this year, Shipt expanded the number of stores it would deliver from by more than 40% when it added Walgreens and 7-Eleven stores to its network.
Though Shipt is run from a headquarters in Birmingham, Ala., it is deeply connected to Minneapolis-based Target. Shipt's recently-appointed CEO, Kamau Witherspoon, is a former Target executive and reports to Target chief operating officer John Mulligan. Shipt's performance is lumped into Target's overall financials.
However, during the multiple times that Target gave bonuses to its employees during the last two years, Shipt employees were exempt from the financial rewards though Shipt did give out some extra pay for its busiest workers during select times like the holidays.
After Shipt reworked its payment structure in the summer of 2020, workers complained they made less. There were makeshift demonstrations throughout the fall that year, including in front of the downtown Minneapolis Target store and its corporate headquarters.
Kris Beedle, a Shipt shopper who attended Ellison's press conference, said most of the orders she completes don't pay enough to cover taxes, gas and other expenses.
"It just doesn't make ends meet anymore," she said.
