Contractor v. Employee in the Gig Economy

A federal court in California, (Lawson v. Grubhub, Inc., No. 15-CV-05128-JSC (N.D. Cal February 8, 2018)), recently ruled that drivers for Grubhub, a food delivery service, are independent contractors rather than employees. The critical factor in the court’s decision was Grubhub’s lack of control over how its drivers perform deliveries, and even whether deliveries are to be performed at all. The decision is significant because, under California law, if an individual performing services is deemed to be an employee, that person has rights to minimum wage, overtime, expense reimbursements and workers compensation benefits. In contrast, an independent contractor is not entitled to those benefits. The decision is thus a welcome development for employers who rely on flexible and semi-autonomous workers in the “gig” economy.

The facts will be familiar to many. Raef Lawson worked as a restaurant delivery driver for GrubHub, an internet food ordering service that connects customers to local restaurants. The relevant employment agreement defined the relationship as one “of principal and independent contractor, not employer and employee.” The agreement further required Lawson to inform Grubhub if at any time he believed “his relationship with Grubhub [was] something other than an independent contractor relationship.” Lawson was expressly permitted to perform delivery services for other companies. Furthermore, he was afforded “complete discretion to select the dates he is available to perform the delivery services and has no obligation to make himself available on any particular date.”

Prior to his employment, Lawson watched online training videos made available by Grubhub, which did not monitor whether its drivers watched the videos. The videos instructed drivers how to use the Grubhub driver app, the proper etiquette with restaurants and customers, and how drivers should be timely so customers receive warm food. Once he began working, Lawson was not required to wear a uniform, nor to mark his vehicle so that it identified him as a worker for Grubhub. Mr. Lawson was paid on a weekly basis by direct deposit.

Grubhub drivers agree to use and maintain a smartphone at their own expense and to download the Grubhub driver app, through which a driver will commit to work particular delivery blocks. Drivers use a toggle button on the Grubhub app to indicate they are available to begin a block. The delivery blocks are chosen by the drivers, and no one at Grubhub assigns blocks to drivers nor requires that drivers work particular blocks. Blocks generally last between two and five hours and are scheduled around mealtimes. During a delivery block, a driver is “on call” and must communicate with Grubhub dispatchers and provide status updates. Drivers sign up for specific delivery zones, although Grubhub requires drivers to start each scheduled block in their zone and to stay near their zones during their block. The Grubhub app does not send additional deliveries if a driver strays from his zone.

Drivers are paid along a sliding scale depending on mileage and deliveries completed. They are guaranteed $15 per hour for a given block, provided they accept 75% of orders offered to them for delivery during such a block. Drivers drive to a restaurant to pick up an order using whatever route they chose. At the restaurant, a driver will use the app to confirm the order has been picked up. Drivers will then deliver the food to a customer using any route they choose, and Grubhub does not require delivery be completed within a particular period of time.

To determine if Lawson was a Grubhub employee rather than an independent contractor, the court used the multi-factor test set forth in S.G. Borello & Sons, Inc., v. Dept. of Industrial Relations (1989) 48 Cal.3d 341. Under this test, the employer has the burden of proof to show the worker is an independent contractor rather an employee. The principal test of the employment relationship is the employer’s right to control the manner and means of accomplishing the work.

The court found it significant that Grubhub did not control what vehicle Mr. Lawson used for his deliveries, nor did it require he wear a uniform or mark his vehicle with particular signage. Further, Grubhub did not require Mr. Lawson to undergo any particular training, nor dictate what supplies, if any, to carry. Lawson, rather than Grubhub, controlled whether and when Lawson worked, and for how long. Grubhub did not require Lawson to work a minimum or maximum number of blocks. Lawson essentially determined his own hours and break times. Put another way, “Grubhub could not make him work and could not count on him to work.” Even when Lawson signed up for a block, he could cancel right up until the start of the block. Grubhub did not control how and when Mr. Lawson delivered the restaurant orders he chose to accept. Although Grubhub determined the geographic boundaries of the delivery zones, this did not amount to control over how Mr. Lawson performed his work. Rather, this simply amounted to an effort to control the result of his work: ie., delivery of meals in a timely fashion.

In its ruling, the court distinguished several other recent cases in which delivery drivers were deemed to be employees. In those cases, the court found it important that the employer controlled the drivers’ appearance, route, schedule, and even dictated the type of vehicle driven. In other similar instances where an employer-employee relationship was found, employers mandated a specific work schedule and specific timing for deliveries.

This decision is a positive development for employers as they attempt to navigate a complicated and still-developing set of rules for business in the “gig” economy. If it holds up, it will help solidify a contractor model for such employers, assuming they meet the relevant standards. On the other hand, the contractor v. employee analysis is very fact specific, so it is critically important that each employer analyze its own relationships with its workers to avoid misclassification issues.

We have deep counseling and litigation experience on these issues. If you would like to discuss these issues further, or have any questions about this blog, please contact us.