*The views expressed in this article do not represent the views of Santa Clara University.
Who is Locale?
Locale was founded by Chris Clark and Jonathan Friedland in 2020. Clark and Friedland were inspired by a bakery that seemed to always have a long line of customers. The bakery could not afford the risk of offering delivery because the instant, on-demand ordering would pose the threat of overproduction, underproduction, or conflicts with in-store demand. Clark and Friedland designed their startup to use a highly selective process in deciding which eateries are featured on the platform.
This helps them focus on independent and smaller businesses, allowing users to order bundles of food days in advance to protect the business and the consumer from the mentioned issues. The business model has helped them successfully deliver over 50,000 orders for 130 small businesses in the San Francisco Bay Area, Los Angeles, and San Diego. Benefits for users include that there a flat $5 delivery fee rather than the cost varying based on location. Furthermore, users can order from other locations that Locale serves, whether or not the user is in the vicinity of that location.
Locale raised $14 million in funding with the help of venture capitalist, Andreessen Horowitz. Alongside Horowitz, startup accelerators such as Y Combinator, Decent Capital, Wave Capital, and executives from eBay, Ancestry, and Poshmark also invested in the startup. While Locale is based in the San Francisco Bay Area, enough funding was secured that they could expand to other large cities like Los Angeles and San Diego.
Labor Law Violations
During the COVID-19 pandemic, food delivery service saw exponential growth. In the United States alone, the already growing market more than doubled in its worth. Locale was founded at the outset of the pandemic with full intention to capitalize on the growing demand for contactless food delivery services. Clark shared that the founders held full time jobs and cited the robust demand as the reasons that the new company hired minors to drive for them. These two factors taken together may also speak for the shortsightedness in hiring minors as independent contractors which is directly adverse to relevant law.
The Fair Labor Standards Act establishes minimum wage, overtime compensation, and among other things, limits on child labor. The FLSA specifically prohibits minors 16 years old and younger from driving on public roads in connection with their work obligations in any circumstance. Further, minors at least 17 years old may only drive on public roads for their jobs in extremely limited circumstances; delivery of food and other goods on a time constrained basis are categorically prohibited.
Major food delivery and ride sharing services successfully lobbied California Proposition 22 which established exemption for independent contractors, such as rideshare and food delivery workers, from status as employees of such companies. As a result, minimum wage and health insurance requirements do not apply to independent contractors. The legality of minor drivers aside, Locale’s classification of minor workers as independent contractors deprived them of any right to minimum wages and other compensation benefits, leading to a lawsuit and a hefty fine.
Locale was fined $139,398 for employing 78 minors to deliver meals and groceries. Although there hasn’t been reports of any accidents occurring involving the young drivers, the risk for their safety is what was considered when charging Locale with this fine.
Next Steps for Locale
Food delivery startups face a number of challenges and potential legal issues, as even delivery giants like DoorDash and Grubhub have faced lawsuits for charging small businesses with delivery fees as high as 30% during the pandemic. Locale even makes a point to cite the pandemic and how their company got its start during that period when justifying its use of underage drivers as part of ‘friends, family, and members of the community who jumped in to help fulfill orders.’ With these facts in mind and the price regulations food delivery services have to abide by, it isn’t too difficult to understood why Locale as a novice startup may have been tempted to violate child labor laws to cut costs.
Locale’s plan moving forward is to stop its use of underage drivers completely. Since it is unclear how a probe into Locale’s business practices arose and the Department of Labor typically does not disclose the reasons for their investigations, it is in other startups’ best interest to ensure they are abiding by the local and federal laws early on so as not to be at risk of footing a large fine like Locale. A community specialist for the Department of Labor based in Oakland shared that there are certain industries the Department specifically looks at because of the high potential for violations and low potential for complaints. Given the nature of food delivery services, startups in this sector are no exception.