HR startup Deel's labor practices should be investigated, lawmakers say

U.S. lawmakers called for a federal investigation of labor practices at Deel, a startup valued at $12 billion that sells human resources services but is under scrutiny for its use of independent contractors, including for its own chief executive officer.

A group led by Adam Schiff, a congressman from California, raised questions about Deel's ability to advise clients on legal compliance while potentially misclassifying its own employees as contractors. He and five other Democratic members of Congress wrote a letter Wednesday urging acting U.S. Labor Secretary Julie Su to open an investigation into the company.

Read more:  100 years, zero layoffs: Torani's CEO shares their secret

"As a means of maximizing profitability and growth, the startup made the decision to adopt highly unusual labor practices, including recruiting a significant share of its employees as independent contractors, covering everything from sales to senior management positions going all the way up to its CEO," the lawmakers wrote. "If it is likely that Deel is unable to abide by employee classification laws themselves, and they are in the business of helping their clients classify their employees, how sound can their advice be, and what is the broader systemic and economic impact as a result?"

In an emailed statement, Deel said the letter's claims "suggest a deep misunderstanding" of its business. "These allegations are wrong, based on inaccurate reporting, and sadly no one verified the information with us," spokesperson Elisabeth Diana wrote. "We want the same things as the government does — to help and educate companies to classify their workers properly." Deel said the "overwhelming majority" of its U.S. workforce are classified as full-time employees. According to the company, that now includes its CEO, who Insider reported in March was himself classified as a contractor.

Deel is just four years old but is already among the 20 most valuable tech startups in the U.S., according to the research firm CB Insights. The company more than doubled its valuation from fall 2021 to last year. Deel's investors include Uber, CEO Dara Khosrowshahi, Andreessen Horowitz and Laurene Powell Jobs' Emerson Collective; its website lists clients including Nike, Dropbox and Forever 21. "With Deel, you can let us correctly classify and hire contractors in 150 countries on your behalf," the site tells potential clients.

Read more:  Who's on strike in the US — and who's next?

Employee classification has been a hot-button issue in recent years. Companies throughout the economy are seeking to limit costs and maximize their flexibility by deeming workers independent contractors, who under U.S. law are supposed to be subject to less control than full-fledged employees and are excluded from many traditional employment rights. Using contractors also saves companies costs such as payroll tax that are required for employees.

Gig economy companies like DoorDash, Lyft and Uber have argued that the contractor model helps provide flexibility for staff and makes services more affordable for customers. Labor advocates contend it deprives workers of protection against wage theft, union-busting and harassment.

Under President Joe Biden, the U.S. Labor Department is working on regulations narrowing the definition of a contractor. The Democratic majority on the National Labor Relations Board, which enforces unionization rights, last month voted to make it more difficult for companies to prove their workers are not employees.

Read more:  Wall Street is fighting New York's ban on non-compete agreements

In their Wednesday letter, the lawmakers cited reporting by Insider, which wrote in March that people who've worked at Deel perceived little difference in the treatment of its employees and its ostensible contractors, who worked the same hours and in some cases received annual reviews. In the Insider story, a Deel spokesperson said the company complies with relevant labor laws.

Lawmakers were unconvinced. "By failing to fulfill their obligations towards independent contractors, businesses like Deel indirectly shift their responsibility for mitigating the ill effects of their actions onto broader communities, as well as self-employed workers themselves," they wrote in the letter.

California State Senator Steve Padilla sent a similar letter last month to California's labor secretary, seeking a state-level investigation of Deel. The company said the claims in that letter were "completely made up and regurgitated from old news" and added, "Compliance is literally what we do, in over 120 countries."