Dive Brief:

• Amazon is in court in California over the working conditions of drivers for its Prime Now on-demand delivery business, Bloomberg reports. Although the e-retail giant contracts with employment agencies for its drivers, a new California labor law holds the contracting employer, in this case Amazon, responsible for the treatment of workers.

• On-demand delivery and ride-sharing services like Uber and Lyft have disrupted delivery and taxi services in part by offering cheaper services. Using contract workers saves significant amounts of money because the companies don’t have to pay benefits or social security taxes. Worker advocates maintain that the companies are aware of the illegality of their working conditions but go forward because the issue must be sorted out in court, which could take years.

• Amazon hasn’t commented on the suit.

Dive Insight:

The California Labor Commission and the U.S. Department of Labor have sought to clarify that many of the contract drivers like those used by Uber and Amazon are privy to employment status and benefits due to the way the companies treat those drivers.

While many such companies have argued that the law hasn’t caught up with the 21st century on-demand economy, the practice of maximizing profit by skirting labor laws is hardly new, worker advocates say.

In any case, whenever a company tries to accrue both the benefits of having employees and the benefits of having contractors, while only incurring the costs of one of those, labor regulators will likely take notice. In effect, the demand economy will turn out to be a fairly insecure one if companies and consumers benefit to the disadvantage of the workers providing the services.

Amazon has said it’s paying its drivers well. But pay is not at issue; rather, the drivers say they’re being treated as employees because of the strict requirements of where and when they did their work.

California is an especially troublesome place for Amazon to face these issues because when workers win in such cases they’re often able to collect reimbursable business expenses more easily there.

“When companies are caught misclassifying workers, it’s not a huge hit to their pocket book,” Catherine Ruckelshaus, an attorney with the National Employment Law Project, an advocacy group for low-wage workers, told Bloomberg. “They probably made a calculated decision because the cost of complying is generally what they would have had to pay the workers anyway.”

She also told Bloomberg that companies like Amazon and Uber likely won’t change until lawsuits and other challenges to their practices “reach a tipping point where they don’t want the headaches of these cases.”

But not all on-demand delivery services are using contract drivers. Delivery startup Shyp last summer announced it was hiring its drivers outright in order to maintain control of its operations and growth, and Instacart also hires its drivers.