A Wave of Litigation
The new independent contractor rule is likely to affect the growing number of small businesses hiring contractors.
Here are today’s highlights:
Some businesses are finding they’d rather hire older workers, such as when a job candidate brings along a parent.
Smart shopping carts are looking like the future of grocery shopping, but ghost kitchens seem to be fading away.
Could the need for immigrant workers push politicians toward a compromise on immigration?
The new federal rule on contractors could trigger a wave of litigation: “The new rule expands the so-called ‘economic reality’ test so that employers have to weigh a wider variety of factors when classifying workers, including how much control the worker has over their schedule and their employment, how permanent their employment is, and how integral their work is to the work of the company, among the six factors employers must consider.”
“Mark Goldstein, a partner at law firm Reed Smith's labor and employment group, said in an email the new rule could spark a wave of lawsuits. ‘The rule returns to a more-employee-friendly standard than the standard adopted by the department in its 2021 rule,’ Goldstein said. ‘This has the potential to substantially impact businesses that rely to any extent on the use of independent contractors, and may well usher in a wave of new misclassification lawsuits under the FLSA.’”
“Data shows that more and more small businesses are relying on independent contractors as well. In late 2022, pay and benefits platform Gusto found payments to contractors on its platform had increased 23 percent over a two-year span, and the ratio of contractors to full-time employees had grown 63 percent since 2019 — from about one in 10 to nearly one in five.”
“The Labor Department points out that a worker for a landscaping company that performs assignments only as directed and does not independently choose assignments, solicit work from other clients, advertise their own services, or work to reduce costs is not an independent contractor.”
“On the other hand, a worker who provides landscaping services to corporate clients, produces their own advertising, negotiates pricing, and decides which jobs to perform exercises managerial skill — which indicates that individual is an independent contractor.” READ MORE
Smart shopping carts are making progress: “Instacart will test ads on its Caper smart shopping carts at Bristol Farms grocery stores in Southern California, it said on Monday. These carts, designed by an AI startup Instacart acquired in 2021, have been tested in Kroger, Schnucks, Geissler's, and Wakefern. The new ads will appear on a screen just above the handle on the carts, and the ads will even be personalized based on an individual shopper's choices. ‘For example, if a customer adds ice cream cones, they might see a complementary item recommendation, like Dreyer's ice cream,’ an announcement from Instacart reads. Dreyer's, along with General Mills and Del Monte Foods, are some of the food companies placing the first ads to appear on the carts.”
“Shoppers who use a Caper cart spend about half an hour in front of the device, according to Instacart. That's a chance for food brands to advertise products to customers as they're moving through a store, the company says.”
“Instacart plans to have ‘thousands’ of the Caper carts in stores by the end of 2024, Instacart CEO Fidji Simo told Bloomberg on Monday. The carts already have the ability to keep track of what customers intend to buy and charge them accordingly when they're finished at the store.”
“Instacart is trying to grow its own advertising division to expand its business beyond delivery by gig workers. This year, Instacart's ad revenue will increase 25.5 percent to $1.18 billion, according to an estimate from Insider Intelligence.” READ MORE
Is the rise in immigration a problem or a solution? “Net immigration to the U.S. hit a 22-year high of 1.14 million last year, newly released Census Bureau data show. California’s overall population, which lost 75,000 people between July 2022 and July 2023, would have fallen by more than 225,000 if not for international migration, according to calculations by Brookings demographer William Frey. And that resurgence of immigration has not only given the U.S. a modest gain in total population but also done something far more vital for the economy: It has fueled the nation’s workforce in the last year.”
“Foreign-born people ages 16 and older account for about 18 percent of the U.S. working-age population, but they accounted for more than 60 percent of the country’s labor force growth last year, according to the Bureau of Labor Statistics.”
“Although illegal immigration and in recent months the out-of-control influx from the southern border have drawn all the attention, as many in Latin America flee violence and poverty, new arrivals to the U.S. have come from many corners of the world, including more migrants from Africa and refugees from Ukraine, among other countries. Taken together, they could provide additional breathing room to an economy strapped for workers.”
“The National Federation of Independent Business’ December survey found 40 percent of small-business owners had job openings they couldn’t fill. The problem was especially acute in construction and transportation, but hospitality and health services also have many entry-level openings that analysts say could be filled relatively quickly by immigrants, who tend to be younger and highly motivated to work.” READ MORE
Some employers are finding they’d rather hire older workers: “Intelligent, an online magazine focused on student life, commissioned a Pollfish survey of 800 managers, directors, and executives involved in hiring in the U.S. in December. Thirty-nine percent of the employers who responded said they prefer to hire older job seekers over recent college graduates, in part because young professionals don't make a good first impression in job interviews. More than half of the employers said young recruits struggled to make eye contact during the interview, and 50 percent said they asked for unreasonable compensation. Almost half of the employers said a young job candidate showed up in inappropriate attire, and nearly 20 percent said a recent college grad had brought a parent to a job interview.”
“Of the employers who said they prefer to hire older job seekers, 60 percent said they would be willing to offer more benefits to attract them, 59 percent said they would offer higher salaries, 48 percent said they would allow remote or hybrid-working opportunities, and 46 percent said they would be willing to hire overqualified candidates.”
“Young professionals also appear to have a reputation for being difficult to work with. Nearly two-thirds of employers said it was ‘very true’ or ‘somewhat true’ that recent college grads are ‘entitled,’ while 58 percent said it was very or somewhat true that they ‘get offended too easily.’”
“PWC, Deloitte, and KPMG are among the major firms that have said Gen Z recruits who graduated during the pandemic struggle to exercise basic communication skills and office etiquette. As a result, these companies have offered extra classes on soft skills such as how to send emails, what to wear to the office, and how to work in a team.” READ MORE
Congress is looking for ways to rein in the Employee Retention Credit: “U.S. lawmakers are considering curbing a troubled pandemic-era tax credit as they negotiate a bipartisan deal that could include about $100 billion in tax breaks for businesses and families. Senate Finance Committee Chairman Ron Wyden (D., Ore.) said Tuesday he wants to limit abuses of the employee retention tax credit, or ERC. The program, created in 2020 to encourage employers to keep workers attached to their jobs, has cost about triple earlier estimates. The Internal Revenue Service has been using audits, criminal investigations and a voluntary payback program to combat what officials see as fraud and ineligible claims. But taxpayers can continue claiming the credit through April 2025, and the IRS already has about one million claims it hasn’t processed that could in total exceed $240 billion, according to a Piper Sandler estimate.”
“If lawmakers could agree on a way to dial back the tax credit, that could bring down the net cost of a package of tax breaks being negotiated by Wyden and Rep. Jason Smith (R., Mo.), chairman of the House Ways and Means Committee. Under the deal they are discussing, Congress would reverse a series of tax changes that businesses have complained about and expand the child tax credit for some families.”
“Lawmakers have long said they want to revive several business tax breaks that expired or shrank over the past few years. Companies currently must spread deductions for research costs over at least five years instead of writing them off immediately, as they did before 2022.” READ MORE
Fraudulent returns are surging: “The National Retail Federation estimates more than $100 billion in merchandise was returned fraudulently in the U.S. in 2023. That amounted to about 13.7 percent of the overall returned goods retailers received last year, more than twice the level of bogus returns in 2020, according to a report from the NRF, which noted its methodology changed in 2023 to include customer returns data from software provider Appriss Retail. Shoppers this year are expected to return about 15 percent of merchandise purchased during the holiday season, valued at $148 billion, according to the NRF. Retailers anticipate nearly 17 percent of those returns will be fraudulent.”
“Some companies processing returned televisions for retailers have gotten a surprise when opening the boxes—packaging filled with bricks rather than newly purchased TVs. Others examining returned purchases of purported luxury goods are instead finding counterfeits sent in by customers looking for refunds on full-price, deluxe merchandise.”
“Fraudsters are looking to capitalize on policies such as free online returns that retailers rolled out over the past four years with the goal of attracting customers amid a pandemic-driven surge in e-commerce. Those policies have led to an increase in overall returned merchandise as consumers have become accustomed to ordering items online in several sizes and colors, then returning what they don’t want.”
“Thomas Borders, general manager of supply-chain solutions at Inmar Intelligence, a returns-service provider, said in-store returns seem to lead to ‘much, much, much lower fraud’ than mail-in returns.” READ MORE
Maybe ghost kitchens aren’t the answer: “Though their advent predates the pandemic, the numbers and activity of ghost kitchens exploded during and following lockdown periods, when eating out either wasn't permitted or wasn't something diners were ready to risk. To avoid financial collapse, many restaurant owners and corporate chains turned to the small businesses operating virtual kitchens to bridge the gap with clients that drove up demand for delivery meals. Orders placed through apps and dispatched through delivery services were made by cooks operating in separate kitchens away from the restaurants they worked for, or as their own bosses building their own brand.”
“Consumer response was strong, fueling the rapid proliferation of ghost kitchens available on delivery apps like UberEats and DoorDash. Meanwhile, restaurant chains like Wendy's and Appleby's announced the launch of their own offshored sculleries-which are also known as cloud or dark kitchens.”
“Not surprisingly, investors began throwing cash at the sector by 2022, as startups looked to scale the action. Uber founder Travis Kalanick's CloudKitchens attracted a reported $130 million, and order and management software company Ordermark lured $120 million in funding. But as dramatically as they got hot, ghost kitchens suddenly look like they're no longer cooking with gas.”
“A December CNN article was even more pessimistic about the future of the annexed food operations. Headlined ‘Ghost kitchens were supposed to revolutionize restaurants. They're crashing,’ the channel reported both Wendy's and Applebee's have wound down their planned digital kitchen operations, while ‘Kalanick's CloudKitchens laid off its staff this fall.’ CNN added that supermarket giant Kroger had begun either selling off or shuttering outlets of the delivery-only Kitchen United ghost chain it had backed, along with other investors who had ponied up a total of $175 million.” READ MORE
THE 21 HATS PODCAST
New Year’s Resolution? Make. Some. Money: This week, Shawn Busse, Paul Downs, and Laura Zander talk about why 2023 was so challenging for them and what they plan to do differently in 2024. “Last year was a year when I knew I was going to be making a bunch of investments and didn't expect to show much or any of a profit,” says Paul. “And I absolutely nailed that goal.” Shawn, meanwhile, explains how his new marketing scheme is working, and Laura says she’s addressing her issues by going shopping — shopping, that is, for businesses.
She’s now bought a total of six, and she offers a step-by-step guide to how even a relatively small business can grow through acquisition, including what she’s looking for (mostly companies in distress), how she sets a price (she aims to recoup her cash outlay pretty quickly), how she finances the deals (not with a bank!), and how she integrates her old and new operations (that can be a bear).
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren