After a bench trial, Magistrate Judge Corley of the United States District Court for the Northern District of California ruled the plaintiff in the Lawson v. GrubHub, Inc. et al. case (Case No.: 15-cv-05128-JSC) was properly classified as an independent contractor. The ruling is notable because Lawson v. GrubHub was the first case by a plaintiff challenging their worker classification against a “sharing economy” company to go to trial.
The sharing economy, also known as the “gig economy,” is a name for the recent trend in which companies rely on workers who are provided broad flexibility in the hours and frequency that they work (and/or services they provide). In other words, sharing economy businesses do not rely on a traditional stable of employees who are required to work during set time frames. Examples of companies in the sharing or gig economy include Uber (for taxi services), Lyft (also for taxi services), InstaCart (for grocery delivery), and Airbnb (for lodging). The phrase “sharing economy” arose because, in theory, sharing economy businesses seek to allocate underutilized resources among consumers who want them.
Whether a worker is classified as an independent contractor or an employee is significant because independent contractors are not afforded many of the protections that the law guarantees to employees. For example, independent contractors are not entitled minimum wage, may not receive overtime pay, are not eligible for reimbursement of certain expenses such as for vehicle mileage, are not provided detailed itemized wage statements, are not eligible for unemployment or workers’ compensation benefits, are not entitled to contributions from their employer for certain payroll taxes, and do not receive other protections. Employers that misclassify workers as independent contractors may be liable to pay back-wages due to the worker, contribute additional payroll taxes, pay civil penalties, and pay the attorneys’ fees of the prevailing worker.
Currently, the standard in California for whether a worker is classified as an independent contractor or employee is based on an analysis of ten factors outlined in the S. G. Borello & Sons, Inc. v. Department of Industrial Relations case. In sum, the factors seek to evaluate the level of control the employer exercises, or can exercise, over the worker based on the day-to-day aspects of their actual working relationship. The terms of any contract between the worker and employer are not controlling. The more control, the more likely the worker should be classified as an employee.
The S.G. Borello decision, however, was issued in 1989 – more than two decades before the sharing economy business model became so widespread. It was therefore uncertain as to how a Court would apply the S.G. Borello factors to workers in the sharing economy.
Prior to the Lawson decision, class action lawsuits by workers alleging they were misclassified as independent contractors against Uber, Lyft, and Instacart all ended in multi-million dollar settlements. Thus, the Lawson decision was widely anticipated as the first instance of a California court actually applying the S.G. Borello factors to the sharing economy.
In a detailed opinion, Magistrate Judge Corley concluded the plaintiff was an independent contractor because the S.G. Borello factors showed GrubHub did not exercise significant enough control over the plaintiff. GrubHub is a company that provides delivery service for restaurant takeout through an application that its customers primarily use via their phones. The plaintiff was a delivery driver for GrubHub. Among the facts that showed GrubHub did not exercise control over the plaintiff were:
- GrubHub did not require the plaintiff to undergo any training other than instructing the plaintiff to watch a few brief videos online. GrubHub did not check to make sure the plaintiff actually watched them.
- GrubHub did not set the plaintiff’s hours. Rather, the plaintiff selected the shifts he wanted to work and could work as much or as little as he wanted.
- GrubHub did not dictate the route the plaintiff used to pick up food from restaurants and then deliver the food to the customer. GrubHub also did not require the plaintiff to complete his deliveries in any certain amount of time.
- GrubHub did not require the plaintiff to use a particular mode of transportation to complete deliveries or a particular mobile phone to claim available delivery assignments. The plaintiff was also not required to display GrubHub signage on his vehicle.
- Although GrubHub provided the plaintiff with a shirt and hat featuring the GrubHub logo, plaintiff was not required to wear them.
- GrubHub did not prevent the plaintiff for working as a delivery driver for competing food delivery services. Plaintiff in fact performed deliveries for other food delivery services during his tenure at GrubHub.
- GrubHub did not provide the plaintiff with a supervisor and never provided him with performance reviews.
Although other facts weighed in favor of employee status, the facts above were too strong to overcome and the plaintiff was ruled an independent contractor.
The Lawson decision can provide some instruction for practitioners advising clients on proper worker classification going forward. The overall value of the decision, however, is likely limited for two reasons. First, the Lawson decision made clear that the facts of the case were highly determinative of the ruling. Therefore, Lawson is not necessarily a guide for the proper classification for all sharing economy workers. Second, there is a possibility the S.G. Borello case may not be the controlling test for worker misclassification in California for much longer. The California Supreme Court recently heard oral arguments in a case called Dynamex Operations West v. Superior Court (Case No.: S222732) regarding whether a different test should be used for worker misclassification suits when wage and hour claims are involved. The alternative test is considered more likely to result in workers being classified as employees instead of independent contractors.
Practitioners and their clients should therefore treat Lawson as a useful case study but keep an eye out for possible changes to this area of law in the near future.