Homejoy shuts down amid lawsuit over worker misclassification

The recent spate of worker misclassification lawsuits against on-demand service companies appears to have claimed its first victim, with home-cleaning company Homejoy announcing Friday that it planned to close.

The San Francisco company was slapped with a class-action lawsuit in March in which plaintiff J.C. Iglesias alleged that Homejoy misclassified its cleaners as independent contractors, depriving them of reimbursements and overtime wages.

Although a ruling has not been handed down, Homejoy Chief Executive Adora Cheung told tech site Re-Code that the lawsuit was a “deciding factor” in shutting down the company. Homejoy’s last day of operation will be July 31.

“A lot of this is unfortunate timing,” Cheung told Re-Code, referring to the growing number of lawsuits against on-demand service companies that have made investors antsy about funding companies in the space.

According to Cheung, the lawsuit made fundraising difficult, and, in the face of existing growth and revenue challenges, the company was unable to raise the amount it needed to grow.

“We declined those investments because it wasn’t enough, [and] we wanted to stay true to our vision,” she said.

Homejoy did not immediately respond to requests for comment.

Other companies in the on-demand economy have been hit with similar lawsuits. In the transportation category, both Uber and Lyft face class-action lawsuits over worker misclassification. On-demand laundry service Washio and on-demand delivery company Postmates are also being sued, as well as grocery delivery service Instacart and postal service Shyp (the latter two recently respectively reclassified some and all of their workers as employees, respectively).

Companies such as Uber, however, with billions in investment capital, can afford to defend such suits, but most app-economy start-ups don’t have nearly that much cash.

Verdicts have not been handed down in any of the cases, but attorney Steve Hirschfeld, who has practiced employment law for more than 30 years, said the ramifications of an unfavorable ruling could hurt the companies, putting them on the hook for back wages, reimbursements, employee benefits and more.

“The consequences of this are significant because these businesses were built on the notion of not employing [many] people,” Hirschfeld said. “Their economic structure, their financial structure, their corporate structure, how they organize their business model – it’s all built upon assumptions that they’re not employing people directly.”

Twitter: @traceylien