A California state senator is calling for a labor investigation into $12B HR startup Deel over 'brazen employment misclassification' after Insider's reporting

• $12 billion HR startup Deel is facing calls for a California Secretary of Labor investigation.
• Multiple California state senators criticized Deel for "brazen employment misclassification," citing reporting from Insider.
• The company is heavily reliant on independent contractors, Insider previously reported.

A California senator is calling for the state's Secretary of Labor to investigate Deel, a buzzy San Francisco-based HR startup valued $12 billion, over "brazen employment misclassification."

In a letter addressed to Secretary Stewart Knox and the Labor and Workforce Development Agency sent in late June, Stephen Padilla cited a recent Insider investigation into the Deel and asked the state agency to look into how the company treats its 2,000-strong workforce.

Founded in 2018, Deel helps companies expand and hire around the world. It has a variety of products, from HR and payroll tools to an "Employee Of Record" service in which it hires workers on a client's behalf in countries they don't yet have a legal presence. Bouyed by the pandemic and accompanying shift to remote work, the company grew rapidly, and it has received nearly $700 million in venture capital investment from top tier firms including Andreessen Horowitz and Emerson Collective.

In March, Insider reported that at least half of the company's global workforce are independent contractors, and that there is no meaningful difference in the duties and expectations placed on contractors and employees. Contractors work the same full-time hours as employees, are paid fixed monthly or biweekly sums, are assigned work, have managers, are on years-long or open-ended contracts, and need to request time off in advance, for which they are paid.

Even Deel's CEO, Alex Bouaziz, is an independent contractor.

Citing Insider's reporting, Padilla wrote: "This greed-driven approach to labor management is a blatant reminder of the systemic inequities that persist in our economy, and it is deeply concerning to see companies like Deel prioritize their corporate bottom line at the expense of workers' basic rights and protections."

In a statement, a Deel spokesperson told Insider the allegations were "completely made up" and "most likely based on competitor hearsay." 17 current or former Deel workers had told Insider in March that they had concerns the company may be misclassifying contract workers' employment status. These sources worked at Deel at varying points in its history in California, elsewhere in the US, Canada, and around the world.

According to Deel, less than 1% of its workers in the US are currently independent contractors. (Historically, Deel brought on many US workers as independent contractors, insiders previously reported, and over time allowed workers to be full-time employees in a small number of countries.)

Padilla added that he believes Deel is advising clients on how to miscassify workers and avoid taxes, pointing to recent remarks from Bouaziz about how the company guiding clients on "the different ways of employing someone or assigning them as an independent contractor...and therefore don't put as much tax liability into your company."

In an accompanying statement, state senator Dave Cortese, Chair of the Senate Labor, Public Employment and Retirement Committee, said: "Any company found breaking the law will be brought to justice, and they would certainly have no business advising other companies on labor law."

State senator María Elena Durazo added: "If Deel advises clients to do the same as they do, which is employ workers as independent contractors, it only perpetuates a cycle of denying workers basic protections like healthcare, unemployment insurance, workers comp, retirement and overtime."

"Compliance is literally what we do, in over 120 countries. We have to understand it for our customers, and we certainly practice it ourselves," the Deel spokesperson said. "Today we have over 50 compliance experts in house and an external network of country advisors. To advise clients on how to misclassify their workers would be at complete odds with our business model. We've also created a consortium with external academics called the Deel Lab for Global Employment to study and help prevent misclassification practices."

Insider previously reported that at least some Deel workers had contracts with the firm's California corporate entity, and some contracts additionally specified that disputes should be resolved according to California law. When workers have a contract with a California entity, that may subject them to California labor rules, even if they didn't work within the state, Thomas Lenz, an adjunct lecturer at the University of Southern California Gould School of Law, previously said, talking generally about the state's employment law. "Where that relationship is considered to exist is an important one, and if it's being controlled out of California, it might be something that a California court says is governed by California law," he added.

At various times, Deel has hired workers as contractors in the US, Canada, the UK, Australia, France, Germany, Spain, Greece, Brazil, Turkey, India, Pakistan, Hong Kong, Singapore, the Philippines, Nigeria, and elsewhere, sources at the company said. A Deel spokesperson previously declined to comment on which state or country it believes has jurisdictional authority over its employment contracts.