Delivery company goPuff left out key details before winning $39 million N.J. tax break

Jul 11, 2019

The home delivery service goPuff failed to disclose a federal labor law violation to New Jersey officials when it applied for a $39 million corporate tax break last summer, a warehouse workers union said.

It is the latest example of a company facing scrutiny for its application to the controversial Grow New Jersey tax incentive program, which is currently under investigation by a state task force that found it lacked oversight.

goPuff vehicles in Philadelphia, where the company is headquartered. (Kimberly Paynter/WHYY)

In the July 2018 application, goPuff responded “NO” when asked whether it had been found in violation of any laws “governing hours of labor” and “minimum wage standards.”

Yet the federal Department of Labor said in May 2018, just a month and a half earlier, that the company had misclassified delivery drivers in State College, Pennsylvania, as independent contractors. The agency ordered it to pay $4,504 to 14 workers for minimum wage and overtime violations, according to the DOL case summary.

The union Laundry, Distribution and Food Service Joint Board obtained the document through a federal public records request and shared it with WBGO.

“They made misrepresentations on their application, and the misrepresentations were covering up bad working conditions,” said Megan Chambers, co-manager of the union, a Workers United local affiliated with SEIU, that represents warehouse employees.

“This is just another sad example of how a warehouse operator, a big national company making tons of money, comes into the state of New Jersey and asks for tax incentives … but is not committing to provide good jobs in exchange,” Chambers said.

The union does not represent any employees who work for goPuff, she said.

goPuff, which applied under the company’s official name, goBrands, Inc., did not respond to repeated requests for comment. Several attorneys who have worked for the company also did not return requests for comment.

The revelations about goPuff come as Gov. Phil Murphy continues to take aim at the state’s tax incentive system, which he claims is too generous and lacked the proper controls under the previous administration of former Gov. Chris Christie.

Murphy has called for a complete overhaul of the tax incentive program, including monetary caps on how much the state can award in a given year. The Democrat has vowed to veto a bill to extend the now-expired programs through next year.

A task force convened by Murphy to investigate the programs uncovered evidence that suggested companies may have misled state officials on their applications for the taxpayer-funded awards.

The task force questioned whether three companies that applied together for incentives to move to Camden — Conner Strong & Buckelew, NFI, and the Michaels Organization — would have actually relocated to Philadelphia without the tax break, as they had claimed. Grow NJ awards go to companies that create or retain jobs in New Jersey.

The task force and a recent WNYC/ProPublica report also found that tax break recipient Holtec International falsely claimed on its application that it had not been blocked from doing business with a state or federal agency. In 2010, the Tennessee Valley Authority barred the company from doing federal work after a TVA employee failed to disclose payments from Holtec.

Those four companies have ties to South Jersey Democratic power broker George Norcross, who has tangled with Murphy over the tax incentive program. Norcross sued to stop the task force investigation, but a state judge ruled it could proceed.

The Norcross-linked companies were approved for incentives under former Gov. Christie, a Republican who often partnered with Norcross and who has borne the brunt of Murphy’s criticism.

But goPuff’s successful application for a $39 million corporate tax incentive was approved by the state Economic Development Authority under Murphy. The governor has said that, since he took over as the chief executive in January 2018, the EDA has instituted stricter monitoring procedures.

“We are — based on everything I know — very comfortable with the mentality, with the guardrails, with the monitoring [and] the compliance around those incentives,” Murphy said in January after being asked whether the state would continue awarding tax breaks through the programs he criticized.

The news about goPuff also comes on the heels of a report released Tuesday by a different task force created by Murphy, which found that the misclassification of workers is “a growing problem in New Jersey.”

“Misclassification not only hurts workers and law-abiding businesses, it also hurts the State,” the report said.

Started by a pair of Drexel University roommates in 2013, goPuff originally delivered snacks to college students. The company exploded in popularity. Now it serves more than 90 markets delivering a litany of items that commonly appear on convenience store shelves, including chips, candy, energy drinks, cleaning products, rolling papers, and vape pens.

Aided by the tax incentive, goPuff planned to buy land from Rowan University to build a 300,000 square foot facility spanning parts of Harrison Township and Glassboro that it said will create 602 full-time jobs and spur more than 200 construction jobs. The company said it was also considering an alternate location in Lansdale, Pennsylvania, that would have been cheaper.

The new 40-acre site will house logistics, data analytics, and research and development operations as well as administrative and management officers, according to the application. goPuff also said it entered into a memorandum of understanding with Rowan University to “collaborate on new technology for goPuff’s business and Rowan can create programs which will provide Rowan students with internships prior to graduation and jobs upon graduation.”

Yet when the EDA board approved goPuff’s application in November, the company had apparently not disclosed key information that could have disqualified it from receiving an award.

“It is not apparent from a review of goBrands’ application or project file that details on the federal Department of Labor finding were included,” said EDA spokeswoman Virginia Pellerin.

It is unclear what first caused the DOL to open an investigation into working conditions at the company’s State College location.

In mid-May 2018, DOL representatives held a telephone call with goPuff president Yakir Gola and an attorney hired by the company to inform them of the results of the investigation, according to the DOL case summary obtained by the union.

A DOL official said the department had found that goPuff “delivery drivers were in fact employees” since they were integral to the company’s business, despite goPuff claiming they were independent contractors, the document said.

As a result of the misclassification, department officials said the company owed $4,504 in minimum wage and overtime pay to 14 delivery drivers at the location, which goPuff later agreed to pay, according to the DOL case summary.

The Grow NJ application submitted by goPuff CEO Rafael Ilishayev made no mention of the DOL investigation or its conclusions.

Pellerin said the EDA intends to follow up with goPuff to obtain more information.

She did not want to speculate on the DOL finding, but said that the EDA’s regulations state that one reason for debarment or disqualification is a “violation of any laws governing hours of labor, minimum wage standards, prevailing wage standards, discrimination in wages, or child labor.”

The EDA has the power to reduce, suspend, or terminate a tax incentive award. State officials have also said that criminal charges could be brought against companies that violated the law.

The company has not received any of its $39 million tax credit yet and will not until it certifies it has constructed the new facility and created the promised number of jobs.

goPuff also responded “NO” on its application when asked whether it was a party to any legal proceedings related to labor law violations.

In October 2017, former goPuff delivery driver and operations manager Austin Shockley filed a class action lawsuit against the company, claiming it was misclassifying drivers as independent contractors and owed them overtime pay. The lawsuit was ongoing at the time of the application.

According to the EDA, a few days after goBrands submitted its application, the company amended the filing to indicate it was named in a lawsuit.

Although the EDA asks about pending lawsuits on applications for tax incentives, the authority only considers litigation that has resulted in a final judgment or a conviction when determining whether to disqualify an applicant.