Cleaning services company Homejoy is shutting down on July 31 after struggling to raise a big enough round of funding. The company had already been facing growth and revenue challenges, but CEO Adora Cheung said the “deciding factor” was the four lawsuits it was fighting over whether its workers should be classified as employees or contractors. None of them were class actions yet, but they made fundraising that much harder.

“A lot of this is unfortunate timing. The [California Labor Commission’s] Uber decision* … was only a single claim, but it was blown out of proportion,” she told. The on-demand space has become a riskier bet for investors in a short amount of time.

The San Francisco-based startup was unable to raise enough money to continue on, CEO and co-founder Adora Cheung told, adding that while there were serious growth challenges (most notably, fierce competition from Handy), the “deciding factor” was a legal issue: Worker classification.

Like many companies operating in the sharing economy, Homejoy faced multiple lawsuits over whether it can legally classify its workers as contractors, not employees. Peer-to-peer operations like Uber, Lyft and Postmates have been able to thrive in large part because they keep their employee count small. Instead, these companies classify the majority of their workers as contractors, meaning they aren’t responsible for covering payroll taxes, health insurance, overtime and other benefits.

 

This is one of the first startup casualties as a result of the worker classification issue that has gripped the tech industry. Many companies in the gig economy, such as Uber, Postmates, Luxe and Sprig, classify their workers as contractors instead of employees. As a result they dont have to foot payroll taxes, social security benefits, vacation time or other fees. But workers havefiled lawsuits over the issue, and it’s now become aheavily debated talking point among the presidential candidates.

It was bad timing for Homejoy; when the ruling was handed down, the company was in the process of raising money. “The Uber decision … was only a single claim, but it was blown out of proportion,” Cheung told , implying that investors got skittish.

Founded in 2012 by Cheung and her brother Aaron, Homejoy raised $40 million from investors including First Round Capital, Redpoint Ventures and Google Ventures.

The shuttered company’s tech team is reportedly being hired by Google team

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Sangeeta Ghosh

Sangeeta is an engineering graduate and is passionate about painting and music. She is always blooming with new ideas and is a real go to person when you are searching for one. Exploring good dining places across the city is her favourite off-field indulgence. At KnowStartup, she is an integral part of the editorial team.

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