In a recent classification case involving the “gig” or shared economy, a U.S. magistrate judge handed down a significant win for Grubhub, concluding that a driver who sued the company under California’s minimum wage, overtime and employee expense reimbursement laws was not covered by those laws because he was an independent contractor, not an employee.  The decision, which was reached after a bench trial, marks a significant win for the gig economy, which has been built largely around technology platforms and generally uses an independent labor force (rather than employees).  While this decision, involving California wage and hour laws, does not necessarily have far-reaching national implications for the legal landscape in this rapidly growing sector of the economy, it does provide some much-needed guidance and favorable precedent for this emerging area of the law.

Background  

In Lawson v. Grubhub, Inc.,¹ the plaintiff had worked with Grubhub as a delivery service provider, making deliveries to customers who ordered food through Grubhub’s online platform.  During the plaintiff’s brief four-month period working with Grubhub, he also provided delivery services for other gig economy companies.  He began working with Grubhub after completing an online application, submitting requisite documents such as a driver’s license and proof of vehicle registration and auto insurance and entering into a service provider agreement that characterized the parties’ relationship as that of “principal and independent contractor, not employer and employee.”

The threshold (and dispositive) issue examined by the court was whether the plaintiff was an employee or independent contractor under California’s common law test.  While the issue itself is simply stated, the classification analysis that it entails requires a fact-intensive examination of a number of separate factors, none of which is dispositive, with the most significant attention given to whether the putative employer has the “right to control the manner and means of accomplishing the desired result.”  Other factors include:  (1) whether the service provider is engaged in a distinct business or occupation; (2) whether the work is performed under the direction or supervision of the principal; (3) the skill required for the work; (4) whether the principal or the worker supplies the tools, equipment, instrumentalities needed to perform the work and place where the work is performed; (5) the length of time for the performance of services; (6) whether payment is made by time or by the job; (7) whether the work is part of the regular business of the principal; and (8) whether the parties intended to create an employment or independent contractor relationship.  In a lengthy and thorough opinion, U.S. Magistrate Judge Jacqueline Scott Corley analyzed each factor, ultimately concluding that the right-to-control factor as well as a host of other factors weighed in favor of her conclusion that the plaintiff was an independent contractor and not an employee.  Following are some of the more noteworthy factual findings and conclusions reached in the Lawson decision:

Right to Control²

• Grubhub did not control how the plaintiff made deliveries or the condition of the mode of transportation used for making deliveries.  The court recognized that Grubhub did require that the plaintiff’s vehicle be registered and insured and that the plaintiff be licensed to drive but reasoned that requiring compliance with such legal requirements did not weigh in favor of employment status. 

• Grubhub did not control the plaintiff’s appearance, even though Grubhub provided the plaintiff with a Grubhub shirt and hat, which the plaintiff agreed to wear in exchange for Grubhub’s provision of insulated bags to carry food deliveries.  The court reasoned that, notwithstanding the plaintiff’s agreement to wear the shirt and hat, Grubhub never actually monitored or supervised whether the plaintiff, in fact, did so. 

• Grubhub did not provide orientation or mandate training.  While Grubhub provided the plaintiff with training videos, it did not require him to attend any training or onboarding and did not monitor whether drivers actually watched the training videos.

• The plaintiff had complete control over his schedule, whether and when he worked and the duration of work performance.  While Grubhub retained the right to cancel its agreement with the plaintiff if he accepted a block of time to make deliveries and then did not make himself available, the court reasoned that “even an independent contractor must perform the work he contracted to perform.”

• Grubhub determined the parameters of the delivery zones in which the plaintiff worked but such control was directed at the result of, as opposed to the manner and means of, the work.  In other words, Grubhub sought to ensure that meal deliveries were made in a timely manner by limiting the size of geographic area serviced by the plaintiff.

• Even though either party could terminate the relationship upon 14 days’ notice, the contractual right of Grubhub to do so did not, under the circumstances, afford Grubhub significant control over the plaintiff.  In concluding that the right to terminate at will was “neutral” in this case, the court pointed out that the plaintiff did not even perform any work for the first two months after he contracted with Grubhub and emphasized that he even delivered for other delivery companies while working for Grubhub.

Other Factors³

• The 60-day term of the service provider agreement, which automatically renewed, supported an independent contractor finding.  The court emphasized that the plaintiff was free to make deliveries or stop making deliveries at any time without penalty and that each block of time accepted for performance of services was treated as a separate contractual engagement.

• The method of payment weighed “slightly in favor of an employment relationship."  The court observed that even though Grubhub paid the plaintiff per delivery “in theory,” “in practice it paid him by the hour.”  The court reasoned that so long as the plaintiff completed a certain percentage of deliveries during an accepted block of time, he was paid a minimum hourly rate rather than a fee.  

• The intent of the parties was “neutral,” despite the fact that the agreement (signed by both parties) plainly indicated that the relationship was that of principal and independent contractor and not employer-employee and even though the agreement expressly provided that if the plaintiff changed his mind about being an independent contractor, he would notify Grubhub.  The court reasoned that, notwithstanding the foregoing, “[i]n the circumstances here—where the hirer unilaterally determines the contract’s terms for a low wage, low-skilled job—the parties’ label warrants little weight.” 

• Even though the plaintiff worked with other, competing gig economy companies while working with Grubhub, the court evidently deemed that insufficient to demonstrate that the plaintiff was engaged in a distinct occupation or business.  In reaching this conclusion, the court seemed to rely heavily on the plaintiff’s inability “to decide how much Grubhub paid him or how much Grubhub’s customer’s paid for his delivery services.” 

While the Lawson decision provides helpful and welcomed favorable precedent to businesses in the gig economy, its precedential reach is limited.Businesses should recognize that factual differences will always be present in any case, that legal “tests” for determining worker classifications vary widely depending on the jurisdiction and applicable statute (e.g., wage and hour, tax, workers’ compensation, etc.) and that most classification tests involve a number of factors, which can be balanced and weighed differently depending on the court, judge or agency making the decision.It also should be noted that in Lawson, the court found that the plaintiff had been dishonest during the litigation and had “gamed” the Grubhub driver app in order to be over-compensated.According to the court, such conduct not only undermined the plaintiff’s credibility but also impacted its substantive findings.For example, the court observed that the plaintiff’s “gaming of the Grubhub driver app [] illustrates how little control Grubhub had over the details of Mr. Lawson’s work.”

Key Takeaways

There are some lessons to be learned from this decision. Where the terms (including fees) of an independent contractor agreement are (or at least can be) negotiated by the parties, it generally will be more supportive of an independent contractor relationship than a “one size fits all” independent contractor agreement.  While, as a practical matter, it may be challenging from a business perspective to provide for workers to negotiate key terms such as fees, finding ways to provide workers with the latitude to do so could be beneficial.

Requiring a worker to comply with pertinent laws and regulations such as licensing and insurance requirements in connection with performing services would not likely be considered sufficient to create an employment relationship.     

In addition, businesses should remember that typically the right to control, not whether that control is exercised, is paramount.  Thus, imposing a requirement through the service provider agreement or otherwise can undermine independent contractor status, even if the worker’s compliance with the requirement is not monitored or enforced.

Finally, businesses should be cautious in implementing compensation systems that resemble hourly pay.