SAN DIEGO (Legal Newsline) - A California appeals court ruled that San Diego can sue Instacart for failing to collect payroll taxes from shoppers who use its app, even though California citizens passed a proposition confirming shoppers were independent contractors.
Instacart argued the city was bound by arbitration agreements individual shoppers assented to when they signed on to the app, but the Fourth District Court of Appeal, in a May 18 decision, said that agreement doesn’t apply to San Diego because it was suing on behalf of the public. The city argues Instacart deprives the government of tax revenue and workers’ compensation premiums by treating its shoppers as independent contractors instead of payroll employees.
The decision keeps alive a collateral attack on “gig economy” companies like Instacart and Uber, which use apps to link paying customers with workers who provide services. California legislators passed a law in 2020 virtually outlawing most forms of freelance work, then voters passed Proposition 22 carving out exemptions for some gig economy operations. A judge subsequently declared Proposition 22 unconstitutional in a decision now on appeal.
A trial court granted Asan Diego an injunction in 2020 barring Instacart from classifying its shoppers as independent contractors, which it stayed while Instagram appealed. After Prop 22 passed, the appeals court reversed the injunction as unconstitutionally vague but kept the underlying suit alive.
Instacart argued the arbitration contract should apply, since the state was actually suing to enforce the rights of individual shoppers. The company cited other rulings involving California’s Private Attorney General Act, under which individuals can sue companies but the state is the real party in interest.
“The reverse does not hold true,” the appeals court said, however. “No individual shopper has control over this litigation and the city did not need any individual Shopper’s consent to bring the action.”