DoorDash, the on-demand food delivery service and main competitor to GrubHub (GRUB, Financial), has come to an agreement in a class-action lawsuit, reports TechCrunch. The lawsuit states that the company misclassified its employees as independent contractors.
The company has agreed to pay $5 million to settle the case. A judge will need to approve of the settlement before payments are dispersed. The company will pay class members $3.5 million with an extra $1.5 million if the company is profitable for an entire year, is acquired or goes public.
Two separate lawsuits from 2015 involving Cynthia Marciano and Evan Kissner allege that the company misclassified them as independent contractors. The two will receive $7,500 under the terms of the settlement. Workers' rights lawyer Shannon Liss-Riordan will receive up to $1.25 million for representing the members of the class-action lawsuit.
The settlement will be split among 33,744 members, which includes all independent contractors who work for the company and completed one delivery or more.
Independent contractors for the company between Sept. 23, 2011 and Aug. 29, 2016 who were "most active" will receive a higher settlement. Deactivation cannot occur unless an employee has violated DoorDash's rules of engagement. The platform will also allow employees who are deactivated to appeal the decision under the terms of the settlement.
DoorDash can still be sued by other employees who have been wrongfully misclassified by the platform.
The resolution changes the company's policies to make sure clarity is provided. The resolution does not change the status of the independent contractors to employees. DoorDash provided a public update alerting its contractors of the changes it has made.
The company will implement quarterly surveys to ensure that contractors can provide feedback to the company. Dashers can also use a forum to connect with executives and leave feedback at any time.
DoorDash isn't alone in its legal troubles over worker classification. GrubHub has faced similar misclassification lawsuits.
The company is also facing a class-action lawsuit from April 2016 that alleges that the delivery service knowingly overcharges its customers without their knowledge. The lawsuit alleges that the company charges the food it delivers with no indication of the higher charges. The company does disclose its delivery fees and tips required for delivery.
The lawsuit, filed by Leah Bassknight, asserts that many of the restaurants don't know that DoorDash is charging more for their food.
The lawsuit suggests that the company charges higher prices when working with unaffiliated restaurants. The complaint includes evidence from a blog writer, who received a receipt from DoorDash and an additional receipt from the restaurant in a bag of food.
The receipt shows that DoorDash charged the writer almost twice the amount for the food in upcharges. The lawsuit suggests that DoorDash never alerts the consumer of the markups, which can range up to $6.95 in some cases on each item.
A leaked training video for the company shows delivery service personnel being told to remove the receipts from the restaurants from the bag before giving it to the customer. DoorDash gives customers their own digital receipt.
Disclosure: Writer does not own holdings in the companies mentioned.
Start a free seven-day trial of Premium Membership to GuruFocus.
