Grocery delivery service Instacart agreed last month to settle for $4.6 million a class action lawsuit file by its “shoppers” alleging that it had misclassified as independent contractors when they were actually employees. But the California judge overseeing the case has put the settlement on hold as the court seeks clarification from the parties—as well as from other Instacart shoppers in the Northeast arbitrating similar claims against the company—on the specifics of the deal.

The class action lawsuit filed in Los Angeles Superior Court alleged that San Francisco-based Instacart cheated its shoppers by misclassifying them as independent contractors and failing to pay them a minimum wage, waiting time pay, or overtime pay. Instacart also allegedly refused to reimburse shoppers for car and cell phone expenses, stuck them with additional independent contractor taxes, improperly pooled their tips, and reported improper pay data to California labor authorities.

The parties claim that under the proposed class action settlement, Instacart would pay class members as much as $1,000 apiece. But the Los Angeles Superior Court calculated that the average payout amount would be a mere $90 per class member and sought to verify what was the correct payment amount.

In addition to the monetary settlement terms, Instacart has promised to make its payment structure, tipping, and dispute processes more transparent. It also agreed to “inform” new applicants that they would have to obtain their own commercial auto insurance—but Los Angeles Superior Court Judge John Shephard Wiley questioned the value of that provision, given that “the shoppers will be picking up the cost of this extra insurance.”

This California class action settlement would cover certain current and former Instacart shoppers in California, New York, Pennsylvania, Washington, Colorado, Illinois, Indiana, Texas, Georgia, Oregon, Florida, Minnesota, Massachusetts, North Carolina, Maryland, New Jersey, and Virginia.

Former Massachusetts Instacart shopper Donna Busick is currently arbitrating similar wage and hour claims against the company, and the California settlement threatens to “extinguish” those claims. Busick has objected to the proposed California settlement and moved to intervene, or become a party.

Judge Wiley denied that motion but maintained that he was “eager” to hear what Busick had to say because she would provide “more information and analysis about whether this deal is a good deal or not.”

The misclassification epidemic and the “economic realities” test

The employment relationship imposes significant burdens and costs on employers, especially in employee-friendly states like California. Accordingly, companies have long tried to get away with misclassifying their workers as independent contractors instead of employees. The federal government has estimated that was many as 30 percent of companies misclassify their employees.

But signing an independent contractor agreement or being issued an IRS Form 1099 instead of a W-2 does not magically turn an employee into a contractor. In California, labor officials and courts examine the economic realities of a work relationship, applying a multi-factor test to determine whether it is one of employment or independent contracting. The most important consideration under the economic realities test is whether the employer or principal controls or has the right to control not only the work but also the manner and means in which the work is performed. The analysis may include the following factors:

• Whether the work is a part of the regular business of the alleged employer;

• Whether the person performing services is engaged in an occupation or business distinct from that of the principal;

• Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;

• The worker’s investment in the equipment or materials required by his or her task or his or her employment of helpers;

• Whether the service rendered requires a special skill;

• The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

• The worker’s opportunity for profit or loss depending on his or her managerial skill;

• The length of time for which the services are to be performed;

• The degree of permanence of the working relationship; and

• The method of payment, whether by time or by the job.

In this case, lead plaintiff Dominic Cobarruviaz alleged that Instacart required him and other class members to “Follow a litany of detailed requirements imposed on them by Instacart and they were graded and subject to termination based on their failure to adhere to these requirements.” Instacart assigned shoppers work via text messages telling them exactly what items to pick up, the specific grocery store and exact store location, when and where the items were to be delivered, and even what route they were to take from the store to the customer’s home.

On the other hand, Cobarruviaz and his fellow shoppers “did not have any role or discretion in determine the manner of executing their duties, the timing or scope of their work, or price to be charged for the work performed.” Moreover, while Instacart may think of itself a “real-time logistics platform” that enables users to connect with independent personal shoppers, the company bills itself to customers as “a grocery delivery service that delivers in as little as an hour.” Delivering groceries, therefore, was “fully integrated into” and “within Instacart’s usual course of business.”

Maintaining fairness in the “sharing economy”

Instacart had already rubbed its shoppers the wrong way when it tried to muscle in on their tips by introducing a new service fee for customers and then changing the app interface to label traditional tips “additional” tips and make it more difficult for customers add the gratituties. Tips make up the bulk of many Instacart shoppers’ compensation. As part of the settlement, Instacart will adjust the interface to clarify what amounts are tips that go to the shopper and which are service fees that go to the company.

Instacart, like Uber and Lyft, is part of the ballooning sharing economy where demand for services is matched with decentralized labor using web technology and smartphones. All three companies have been subject to misclassification lawsuits and have had to adjust to the reality of worker protection laws. Through the power of the courts, workers are fighting for their right to a fair share of the sharing economy.

That fight appears to be working, as established players and new entrants to the sharing economy are moving over to business models centered around W-2 employees, not 1099 contractors.