Feb. 13, 2018 Grubhub Successfully Obtains First-Ever Trial Judgment Classifying “Gig Economy” Delivery Drivers as Independent Contractors

Last week, a federal judge in San Francisco issued a judgment in Lawson v. Grubhub, finding that Grubhub, a food delivery company, did not misclassify its delivery drivers as independent contractors rather than as employees.  This decision is notable because it is the first time a California court has reached a merits determination following a trial in a gig economy employee/independent contractor misclassification case.  However, the law in California regarding how to classify gig economy workers remains unsettled, particularly pending a decision from the California Supreme Court in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County, where oral arguments were heard on February 6, 2018.    

Analysis

Plaintiff Raef Lawson worked as a delivery driver for Grubhub, an Uber-like internet food ordering service that connects diners to local restaurants and also offers delivery services.  Lawson signed an agreement with Grubhub, which included a provision enabling either party to terminate the relationship with 14 days’ notice.  Lawson was not required to work a set schedule, and could select from the available blocks of time to perform work at his discretion.  He provided his own transportation (whether it was a car, scooter, or bicycle), smartphone and other necessary equipment (such as food insulation bags).  He was not required to use any Grubhub equipment, to employ Grubhub signage or wear any specific clothing.  He was paid according to each fulfilled delivery, and was provided a mileage reimbursement—rates that he could not negotiate.  Lawson was also eligible to participate in Grubhub’s “true up pay” program, where drivers were guaranteed a minimum hourly wage for a scheduled block if they accepted at least 75% of the orders offered to them during that block.  Lawson received no training from Grubhub, nor was he questioned about, counseled, or reprimanded for untimely deliveries, poor service, or any customer complaints.

Grubhub classified Lawson as an independent contractor.  In his lawsuit, Lawson alleged he should have been classified as an employee, which would have entitled him to minimum wages, overtime compensation and reimbursement of his business expenses.  Although this case was originally brought as a class action by Lawson and a co-plaintiff, Lawson was ultimately forced to prosecute the lawsuit on his own behalf under the California Private Attorneys General Act (“PAGA”).

After a six-day bench trial, the court issued its judgment finding Lawson had been properly classified as an independent contractor.  The court applied the multifactor test established in 1989 by the California Supreme Court in the seminal case of S.G. Borello & Sons, Inc. v. Department of Industrial Relations.  The most significant factor under Borello is whether the company had “the right to control work details.”  The court concluded that Grubhub did not have the right to control Lawson’s work details.  The court focused on the fact that Grubhub could not make Lawson work and could not count on him to work even when he signed up for a scheduled shift, and “exercised little control over the details of Lawson’s work.”  Though other factors such as Lawson’s inability to negotiate his rates weighed in favor of an employment relationship, Grubhub’s overall lack of control over Lawson’s work tipped the analysis in its favor.  The court also appeared to have been troubled by Lawson’s resume fraud and unscrupulous gaming of the Grubhub system’s technological shortcomings to ensure he received compensation for performing no work, factors that detrimentally affected his credibility.

What This Means For Employers

Although this is an interesting development in this important area of employment law, and may be helpful to employers litigating similar issues, this decision is not binding on California courts, at least yet.  Companies classifying gig workers as independent contractors should thus continue to be cautious and carefully analyze their relationship with such workers, and monitor upcoming gig worker misclassification decisions, including the California Supreme Court’s decision in Dynamex expected by May 2018.

---

This E-Update was authored by Dani Nguyen Franke.  For more information, please contact Ms. Franke or any other Paul, Plevin attorney, by calling (619) 237-5200.