United States: California Federal Court Rules In California's First "Gig Economy" Case That Grubhub Delivery Driver Was Properly Classified As An Independent Contractor

The influx of "gig economy" employers that contract with independent workers for short-term engagements, like Uber, Lyft, and Postmates, has carried with it corresponding uncertainty as to whether these "gig" workers are properly classified as independent contractors, or whether they should be considered employees under California law. "Gig economy" companies can breathe a small sigh of relief after the United States District Court for the Northern District of California ruled in favor of independent contractor status for these workers in what is believed to be California's first "gig economy" misclassification case tried to verdict.

On February 8, 2018, federal Judge Jacqueline Scott Corley ruled that a four-month GrubHub delivery driver was properly classified as an independent contractor, and not an employee. While not a slam dunk victory for California "gig economy" companies due to the fact-intensive analysis required in misclassification cases, these companies now have some insight as to how California courts may apply the decades-old rubric to their innovative, twenty-first century business models in determining whether a worker is properly classified as an independent contractor.

I. THE FACTS.

The plaintiff, Raef Lawson ("Lawson"), a four-month delivery driver for GrubHub, brought a wage and hour class action, as well as a representative claim for penalties under California's Private Attorneys General Act ("PAGA"), alleging that he was improperly classified as an independent contractor. He also alleged that GrubHub deprived him of various wage and hour protections due to employees under California Law, such as overtime, minimum wage, and employee expense reimbursements. The case was subsequently removed to the Northern District of California, which granted GrubHub's motion to deny class certification on the basis that Lawson was not a typical or adequate class representative. The parties continued to litigate the PAGA claims.

Lawson worked as a delivery driver for GrubHub, an internet food ordering service that connects diners to local restaurants. After ordering through GrubHub's online platform, customers have the option of picking up their food or having a restaurant delivery person or GrubHub driver (like Lawson) deliver their food.

Lawson had a history of "gig economy" work for companies like Uber, Lyft, Postmates, and Caviar due to flexible scheduling that allowed him to concurrently pursue other career aspirations. As part of his online application to GrubHub in August 2015, Lawson executed a "Delivery Service Provider Agreement" ("Service Agreement") that set forth various terms, including the independent contractor relationship, GrubHub's inability to restrict drivers from working for its competitors, the lack of any minimum period that drivers must make themselves available, drivers' required use of personal equipment (i.e., smartphone, vehicle) to complete deliveries, the applicable service fees paid to drivers, the initial 60-day term of the Service Agreement (subject to automatic renewal), and the mutual right to terminate the contractual relationship. GrubHub did not require its drivers to attend mandatory training as part of the onboarding process. It only required drivers to undergo a generic background check. Similarly, drivers were not required to wear uniforms, place GrubHub signage on their vehicles, or use GrubHub-branded food warming bags.

Although Lawson applied to GrubHub in August 2015, he delayed in performing any deliveries until October 2015 without consequence. Once a week, GrubHub released schedules of two to five hour shifts, called "blocks," through an online program. Drivers like Lawson set their own schedules by signing up for "blocks" when they wanted to work, or simply refraining from signing up at all if they did not want to work. GrubHub did not assign or require drivers to sign up for scheduled "blocks." When Lawson did sign up for a "block," he often logged on to the online application up to 30 minutes late without consequence. Notably, Lawson also admitted to exploiting GrubHub's application by scheduling himself as "available" for deliveries when he had no intention of accepting them, in order to maximize his earnings with minimal-to-no work, since GrubHub employs a formula that rewards drivers who are more "available" with higher payment.

While working for GrubHub, Lawson concurrently delivered for GrubHub's competitors, Postmates and Caviar. In fact, Lawson performed deliveries for these competitor companies during his scheduled "blocks" with GrubHub.

In February 2016, GrubHub terminated its relationship with Lawson for breaching the Service Agreement by failing to make himself available and/or failing to perform deliveries during a high proportion of his scheduled "blocks."

II. GRUBHUB'S LACK OF CONTROL WAS THE SINGLE MOST IMPORTANT FACTOR IN ITS ANALYSIS OF THE WORKING RELATIONSHIP.

The Court analyzed Lawson's status as an independent contractor versus employee of GrubHub under the multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). The single most significant factor that the Court emphasized was GrubHub's lack of control. GrubHub had little to no control over Lawson's work, including how he performed his deliveries, the means of transportation used to effectuate deliveries, Lawson's appearance while performing deliveries, or the amount of time Lawson took to complete such deliveries. Lawson delayed two months to perform his first delivery after applying to GrubHub and regularly denied deliveries without any negative consequence. GrubHub did not require Lawson to wear a uniform, use equipment donning GrubHub's logo, or put GrubHub signage on his vehicle. GrubHub had no control over what scheduled "blocks," if any, drivers chose to sign up for. In fact, GrubHub did not regulate drivers' passengers when performing deliveries, their particular delivery routes, or ability to work for its competitors—even when simultaneously signed up and logged on to GrubHub's scheduled "block" of availability. Aside from controlling the governing fee rates, availability of scheduled "blocks," and geographic boundaries for delivery zones, GrubHub exerted little to no control over its drivers and their performance of deliveries, all which weighed strongly in favor of an independent contractor relationship.

In addition to the "control" factor under Borello, the Court analyzed several other factors. For example, the lack of skill in food delivery and hourly (versus per delivery) compensation model weighed in favor of an employment relationship. However, the remaining factors overwhelmingly favored an independent contractor relationship, including GrubHub's "distinct occupation or business" as a "software provider" (and not a "delivery service," although delivering food was part of GrubHub's usual business); the drivers' lack of tools or equipment to perform deliveries; and the brief initial 60-day term in the Service Agreement (albeit automatically renewable). In sum, the Borello factors overwhelmingly favored Lawson's status as an independent contractor, with the Court's particular emphasis on GrubHub's lack of control over Lawson.

III. WHAT CAN CALIFORNIA COMPANIES EXPECT NEXT?

The Court's ruling in Lawson v. GrubHub is the first of many pending California "gig economy" misclassification cases to go to verdict. Due to the highly fact-sensitive nature of misclassification cases, the Court's analysis in Lawson, when applied to a different fact pattern, may yield an entirely different outcome depending on the detailed nuances in working conditions, or varying jurisdictional laws and standards. However, the Court's ruling in Lawson sheds some light on California courts' handling and analysis of "gig economy" cases to effectively guide such companies when building, restructuring, or defending their business models. Lewis Brisbois' Labor & Employment Group will continue to closely follow the anticipated developments in California's litigation of "gig economy" workers.

The case is Raef Lawson v. GrubHub Inc. et al., case number 3:15-cv-05128, in the U.S. District Court for the Northern District of California.

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