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Breakdown: Unpacking the Fed’s Lawsuit Against Arise Virtual Solutions

This year was marked by groundbreaking developments for the CX industry, but few promise to be as impactful as the Department of Labor’s (DOL) lawsuit against gig-CX firm Arise Virtual Solutions.

The DOL has characterized the lawsuit as perhaps the largest worker misclassification case in its history. Legal experts consulted by NSAM pointed out that, if the courts rule in favor of the DOL, the ripple effect could be game-changing for CX providers –and other companies– which leverage the gig economy as part of their core business strategy. 

In short: The DOL alleges that Arise Virtual Solutions violated the Fair Labor Standards Act (FSLA) by misclassifying over 22,000 US workers as independent contractors, effectively denying them minimum wage and overtime pay. 

  • The lawsuit seeks to restitute the wages allegedly owed by Arise to tens of thousands of workers, many of them women, single parents and members of minority communities. (Read a more detailed account of the case here).
  • In its response to the complaint, Arise underscored that it is not a provider of CX services but a facilitator of said services.
    • Arise uses an Uber-like platform to connect individuals with clients seeking call center agents. Under that model, the company’s platform functions as a virtual marketplace where clients and agents can meet and agree to do business.

The crux of it: The court’s ruling will depend on whether the DOL can prove that agents which use Arise’s platform are, in fact, company employees as defined by current US law.

Although the parameters for identifying an independent contractor in the US are constantly changing, the DOL currently uses a multi-factored approach which takes the whole relationship into account, with six main points to consider: 

  • How much control a company or individual has over the worker in question.
  • The worker’s opportunity for profit/loss depending on their own decisions and investments. 
  • If the worker has to invest in his/her own equipment and facilities, as opposed to them being provided by an employer. 
  • If the worker is being hired for his/her specialized skills or expertise.
  • The degree of permanency in the business relationship.
  • If the work being done by the hired worker is integral to the employer’s business. 

Zoom-out: Arise’s business model falls under what has been termed as “gig-CX”, an adaptation of the gig economy to the customer service industry. The gig model is at the center of the massively successful business operations of multinationals such as Uber, Instacart, Remotasks, Upwork and a large host of others. 

  • A ruling in favor of the DOL in this case could put into question the fairness and legality of the gig model in the US. 
  • “On a federal level, such a ruling by the DOL [against Arise] would be extremely onerous for these businesses [which use the gig model],” commented Camron Dowlatshahi, Partner at California law firm Mills Sadat Dowlat.

Flashback: Arise has already been embroiled in other lawsuits and DOL probes which involved allegations of employee misclassification and/or unpaid wages.

  • In 2013, Arise paid US$1.2 million as part of a lawsuit settlement which involved 158 class members. 
    • The lawsuit alleged that Arise had violated minimum wage and overtime payment laws in California. In spite of the settlement, the company denied all allegations and claims of wrongdoing.  
    • Arise no longer contracts with agents who reside in California. 
  • In 2015, the DOL determined that Arise had misclassified two agents as independent contractors and that both individuals were entitled to back wages and liquidated damages.
  • In 2022, the District of Columbia issued an ongoing lawsuit against Arise, alleging the company misclassified 180 local agents. The company no longer deals with agents who reside in D.C.
  • In 2008, the DOL launched a four-year investigation which determined that Arise misclassified its agents as independent contractors.
    • In spite of the findings, the DOL claims that Arise “refused to pay the back wages owed [and] refused future compliance with the FLSA.” 
    • In its response to the DOL lawsuit, Arise stated that the Department “took no enforcement steps” following its 2008 investigation and that the probe “occurred outside of any possibility of applicable statute of limitations”.  

What’s next?: A trial is scheduled to begin on July 15, 2024.

  • The court is open to the possibility of a settlement of the case before trial. 
  • “There is absolutely a chance for settlement, which would involve some sort of compromise on Arise’s business practice moving forward and possibly a fine,” stated Camron Dowlatshahi. “On the other hand, the DOL may want to set clear precedent and do so by getting a judgment against Arise.”

For your consideration: The DOL under the Biden White House has been characterized as aggressively pro-worker when compared to previous incarnations. 

  • With presidential elections in the US looming close and polls pointing to a very tight race, there’s a chance that the Arise lawsuit loses steam in the coming incarnation of the DOL. 

NSAM’s Take: Even if the courts rule in favor of Arise, the fact that the DOL decided to launch such a massive lawsuit against the company will bring even more attention to the already hot topic of independent contractors and the fairness of the gig economy.

A gig model is very attractive for a sector as labor-intensive as CX. Even though automation has allowed for massive reductions of volumes without much loss in quality of service, CX firms still require bodies in seats to handle nuanced interactions. If so called “gig-CX” falls under tighter scrutiny by regulators and the general public, service providers (and clients) will be left without a very promising option.  

A ruling in favor of the DOL might make vendor managers more cautious when selecting CX partners. While the Department’s lawsuit only lists Arise as a defendant, it explicitly mentions some of the company’s clients, such as Disney, Home Depot and Dick’s Sporting Goods. The lawsuit issued in D.C. listed Comcast  as a defendant, and the 2013 lawsuit had AT&T as a defendant too before the company was dropped from the process. 

While the case exposed by government authorities puts Arise under very unfavorable light, US law is not clear-cut on how to identify independent contractors. Earlier this year, a court in California determined that workers operating within the business models of ride hailing and delivery apps were independents, not employees.

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The past couple years have been marked by scandals involving CX/BPO providers and their clients. TikTok caught unflattering headlines thanks to a labor scandal that hit Teleperformance in Colombia. Meta is at the moment embroiled in a lawsuit in Kenya alongside Sama, which provided content moderation services for the tech giant. 

As the global services industry grows, and as the general public turns more sensitive to issues of labor rights in the sector, clients will trend towards a more tight management of their third party partnerships. This in turn shall make service providers more compliant with labor standards and employment law –nationally or globally–, at least in theory. 

Cesar Cantu

Cesar is the Managing Editor of Nearshore Americas. He's a journalist based in Mexico City, with experience covering foreign trade policy, agribusiness and the food industry in Mexico and Latin America.

2 comments

  • This is the exact reason why we are challenging the status quo when it comes to Nearshore IT Services. Born from the urgent need to curb human commodification in the IT Service / gig economy, TeamStation AI is a beacon of worker empowerment. Most services fall short, leaving workers vulnerable. TeamStation AI flips the script, prioritizing fairness and transparency through secure contracts, transparent pay algorithms, and robust anti-discrimination policies. It champions democratization, prioritizing human well-being over profit, paving the way for a more ethical and sustainable gig ecosystem. TeamStation AI: where workers thrive, not just survive.

  • Ah, so the fact that they have stopped hiring in certain states is retaliatory. I thought it boiled down to whiners and wages. I’ve noticed recently a lot of talk about how the company was started for people who didn’t feel comfortable leaving the house, lol. There’s a lot of work that goes into running your own business and some of the reasons people go after Arise are just silly. I have never actually seen anyone go after them for the right reasons (no compensation for time spent in mandatory meetings, having to comply with call time limits, etc.) Maybe someday someone will get it right. In the meantime, when they get sued or something happens to tick them off, they will just drop a state and take on another country.