In recent years, the retail sector’s use of non-employee gig workers has grown dramatically. Both retailers and brand-name distributors have increasingly used workers who accept work on a project-by-project basis to load and unload inventory, restock shelves, build displays, perform audits and surveys, and assemble orders for online customers.

While the gig-worker business model may be a winner in the retail marketplace, a recent court decision suggests that it may still face significant legal hurdles -- similar to the challenges that Uber, DoorDash and many other gig companies have faced in other sectors. Specifically, retail companies that use gig workers could face exposure for alleged failure to treat the workers as employees.

In Hogan v. The InStore Group, LLC, No. 1:18-cv-10717-DPW (D. Mass. Jan. 11, 2021), the plaintiff was Paradise Hogan, a “vendor associate.” Hogan signed an Independent Contractor Vendor Agreement with InStore and used InStore’s website to learn about, sign up for, and perform various one-off merchandising projects. Over a six-month period, Hogan completed seven or eight projects for InStore clients. During the same period, he also performed merchandising projects for at least one competitor of InStore.

Hogan later sued InStore in federal court in Boston, on his own behalf and seeking to pursue a class action on behalf of all other InStore vendor associates in Massachusetts. He claimed that Massachusetts law required InStore to treat him and all other vendor associates in Massachusetts as employees, not as independent contractors. Moreover, he contended, as employees, vendor associates were entitled to pay at minimum wage for all time worked -- including time spent traveling between stores -- and reimbursement of business expenses, including mileage.

Judge Douglas Woodlock, the widely-respected federal judge who handled the case, agreed with Hogan. Under Massachusetts law, Judge Woodlock explained, InStore was required to treat a vendor associate as an employee, unless InStore could prove that the vendor associate passed the so-called “ABC test.” The company was required to prove that the vendor associate was:

(A) “free from control and direction in connection with the performance of the work, both under the contract and in fact”;

(B) performing work that is “outside the usual course of the business of the company”; and

(C) “customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the work performed.”

The crux of the court’s ruling was that the work vendor associates performed was within the usual course of InStore’s business. While InStore claimed that it was in the business of coordinating retail services, the judge disagreed and found that InStore was in the retail services business. In so concluding, the court looked to, among other things: (1) how InStore marketed its business on its own website; (2) how it portrayed its business in annual corporate filings; and (3) InStore’s actual business operations, including that InStore generates revenue from vendor associates. The court found that Hogan’s work as a vendor associate was essential to InStore’s business, finding that InStore deals directly with clients pertaining to the selling, administration, quality-control, and payment for the vendor associates’ work. Moreover, InStore’s revenue is directly tied to the performance of the vendor associates’ work.

Unfortunately for retail companies, the Hogan case is relevant beyond Massachusetts. California uses the same ABC test to decide who must be treated as an employee. In addition, a number of other states (for example, New Jersey) use variations on that test. In many jurisdictions, a finding that a worker is performing services that fall within a company’s core business will provide at least some support for a finding that the worker must be considered an employee. And there has been discussion of federal legislation to use the test nationally.

The primary lesson of the Hogan decision for retail companies is that defining the scope of a company’s business for purposes of distinguishing independent contractors from employees is tricky. Courts will not necessarily respect as genuine a distinction between coordinating the provision of services and actually providing services. And, a company’s exclusive reliance on workers it treats as independent contractors to perform some function (and its ability to say it has no employees performing such work) does not necessarily mean that the function will be considered outside the scope of its business. Some courts might even find workers to be employees even if they perform services for multiple businesses, as is common in the gig economy.

Businesses in the retail sector who use gig workers would be wise to assess carefully their potential vulnerability to so-called independent contractor misclassification claims and consider steps to reduce any exposure. The Hogan case will almost certainly not be the last time a gig worker seeks additional compensation by insisting after-the-fact that the worker was legally entitled to be treated as an employee.