US Gov Goes After Gig CX Firm Arise in Giant Worker Misclassification Case

The US Department of Labor (DOL) is dragging gig-CX firm Arise Virtual Solutions to court in what the Department itself has characterized as probably ” the largest misclassification case in its history.”

The lawsuit, launched by the DOL in late June of this year, alleges that Florida-based Arise violated the Fair Labor Standards Act by misclassifying more than 22,000 US workers.

“Our filing seeks to recover back wages and liquidated damages for more than 22,000 employees of Arise Virtual Solutions Inc. based on our finding that the company misclassified these workers as independent contractors,” stated Solicitor of Labor Seema Nanda in the DOL’s press release announcing the lawsuit.

The company denies that any such misclassification took place, stating that a previous DOL investigation led to no enforcement actions and did not identify specific individuals as misclassified workers.

“WHD [Wage and Hour Division] took no enforcement steps against Arise after the [previous] investigation concluded, never asked for the payment of a particular amount of back wages or other damages, and never identified specific individuals that Arise allegedly misclassified,” the defendant stated in its response to the lawsuit.

Arise leverages a “gig model” in which agents (deemend “Service Partners“) sign up to an Uber-like platform from which they are sourced to provide service. This business model allowed Arise to build an impressive client list, which includes names as big as Barnes & Noble, Comcast, Disney and Walgreens.

Service Partners, according to Arise, are independent contractors, a categorization which allows the company to avoid paying minimum wage, overtime and other benefits mandated from employers.

The DOL firmly disagrees with that classification, though, asserting that the reality of these workers is very different from that of actual independent contractors.

“Investigators determined customer support workers had no real autonomy, were subject to the company’s stringent work scheduling policy and had to buy their equipment before providing Arise’s clients with service and generating income,” the DOL pointed out in its press release.

This isn’t the first time that Arise faces legal scrutiny. Since 2011, the company has been embroiled in a series of lawsuits, according to non-profit newsroom ProPublica, which has written several exposés on the company.

Back in 2020, the D.C. Attorney General launched its own lawsuit against Arise and Comcast, which, as a user of Arise’s services, was characterized as a “joint employer who also exercised substantial control over Arise agents’ conditions of work.”

The DOL’s lawsuit, however, might be the most significant yet, given the size of the damages alleged by the Department.

A Flex Mindset

Arise promotes itself to potential customers and agents as a provider of business oportunities, particularly for women, minority-owned SMEs and stay-at-home parents.

“The Arise Platform provides opportunities for parents just like you to launch their own virtual company, giving them the chance to work from home while enjoying the freedom, flexibility, and fulfillment that comes with running your own remote business as a work-from-home parent,” the company touts in its website.

WFH arrangements and a gig-economy mindset are at the core of Arise’s operations. In its response to the DOL complaint, the company recognized that it “provides and makes available a technology platform, the Arise Platform, which offers infrastructure and associated support to enable small businesses to provide customer service, technical support, and sales services to large companies.” In that same document, the company states that “Arise does not provide customer support services itself.”

As part of this arrangement, Service Partners tend to be incorporated into “small businesses offering customer support services.” That is, even though individuals sign up to Arise’s platform, they are labeled as SMEs. In the testimonials published by the company in its site and social media channels, Service Partners are usually identified as CEOs or executives of their own companies.

Following the explosion of Uber and similar apps, gig platforms emerged as a valuable employment option for millions of people facing an increasingly complicated economic and labor landscape.

In the customer service industry, where demand keeps growing and attrition levels remain alarmingly high, the possibility of tapping the gig economy for major scaling and 24/7 availability is an attractive proposition. Arise has been the subject of ample industry recogniztion precisely for its gig-CX model.

Nevertheless, gig platforms have come under increasing scrutiny by the public and by governments. Uber still faces legal challenges over the classification of its drivers and couriers in and out of the US. The DOL itself has addressed the question.

The DOL’s lawsuit against Arise has the potential to be a definitive point in the conversations around gig workers, independent contractors and even outsourcing in general.

If the allegations are proven true, they will impact not only Arise’s financials and reputation, but also cast a burning spotlight on other companies (in both sides of the B2B equation) which make use of gig platforms and lax employment arrangements to improve their business operations.