Las Vegas Sun

March 29, 2024

Zirtual CEO claims worker reclassification helped do company in

At 7:30 a.m. Monday morning in Scranton, Pa., Randi Judge awoke, about to start her shift as a virtual assistant for Zirtual, a startup backed by VegasTechFund and Zappos CEO Tony Hsieh. But then, she looked at her phone.

On her personal email account was a note from her boss: “Effective immediately, Zirtual will cease all operations. This also means that our last day of employment was Friday, August 7th, 2015.”

Unemployed for two days — and Judge didn’t even know it. She was in shock, without words.

“I saw it and said, ‘You’ve got to be kidding me.’ We had no idea this was coming.”

Hired in March, Judge was a full-time employee for Zirtual, the virtual assistance startup that tanked Monday morning, triggering a layoff of more than 400 employees. For more than 24 hours, employees and clients were given little information about how the company’s finances had run dry, even as several former employees alleged that executives at the company had continued to hire and pledge pay raises in the past several months. The abrupt announcement and the ensuing silence was searing, intensified by the fact that most Zirtual employees were full-time employees and received benefits, rarities for the sharing economy company, which is notorious for classifying workers as contractors to lower costs and skirt benefit requirements.

It would not be until Tuesday evening that Zirtual's leadership provided any reasoning for the mass terminations, when CEO Maren Kate Donovan announced the acquisition of the company in a Medium post, albeit without a guarantee that all Zirtual workers would be rehired.

How had a company that presented itself as financially stable reached a point where it may not have been able to meet payroll?

According to Donovan, one of the reasons was that Zirtual had done the very thing that critics of the so-called sharing economy, which includes companies like Uber, had been calling for: Reclassify its employees from independent contractors to full-time employees. In doing so, Donovan said its costs “skyrocketed.”

In April, Zirtual, which has offices in San Francisco but lists its official headquarters at the Ogden condominium building in downtown Las Vegas, had prided itself on “paving the way for a more secure future for the sharing economy” with health insurance, a paid vacation and a 401(k).

For employees like Judge, the full-time package was part of Zirtual’s appeal. “I was thankful they (switched over) because I wasn’t looking for independent contracting work,” she said.

But by the first week of August, it was burning more cash than it brought in, despite more than $3.2 million in investment since June.

But despite Donovan’s claim, several former employees, investors and outside observers laid the blame squarely with the company’s leadership.

For one, Judge said the company continued hiring in the last several months, despite the fact that the company was burning a high rate of cash from $3.2 million in investments since June from sources including the Downtown Project’s VegasTechFund.

Others pointed to a lack of corporate leadership. Jason Calacanis, a Silicon Valley investor in Uber and Thumbtack, who also backed Zirtual, tweeted Tuesday morning that “there was obviously a failure of leadership on the board & management given the abrupt closing.”

This week, Donovan claimed that the company did not discover its financial difficulties until last Monday, and put fault on a reliance on financial consultants, rather than internal executives to monitor spending. “I do blame myself for not bringing senior finance and (operations) people in a year ago,” she wrote in a text.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, said that switching from contractors to full-time workers could increase short-term costs. Classifying workers as contractors allows a company to save by avoiding responsibility for providing its workers with a benefits package, including things like worker’s compensation.

“Most firms (classify) people as employees and they live with that and survive,” said Baker.

He said in the long-term, companies can benefit from employees because they are more likely than contractors to be dedicated to their work and develop skills that improve performance.

Companies like Uber and Lyft that have allegedly misclassified workers are now facing lawsuits and, ironically, so too could Zirtual.

Former employees have filed complaints with the Department of Labor, said Stephanie Garis, a recruiter based out of San Antonio. At least two law firms have contacted former Zirtual employees to investigate whether the startup violated the federal Worker Adjustment and Retraining Notification Act, which typically applies to a mass layoff with no prior notice.

Under the WARN Act employers are required to notify employees 60 days in advance of mass layoffs. If they fail to comply, the company, with some exceptions, could be liable for 60 calendar days of pay and benefits.

It is not clear what legal classification Zirtual’s successor will use to classify its workers.

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