California Federal Court Finds That “Gig Economy” Workers Are Independent Contractors, Not Employees (US)
Uber, Lyft, Airbnb, Postmates, DoorDash. All are companies participating in what has been labeled the “gig economy,” where tasks are performed by workers on a short-term or freelance basis rather than through long-term or permanent employment. As more people participate in this new, mostly smartphone application or Internet-based work model, litigation has followed centering on whether those performing the work are independent contractors or are employees. The ramifications of gig workers being classified as employees rather than contractors are substantial; not only would it likely upend the economic model of most gig economy businesses, classifying gig workers as employees would mean that federal, state, and local employment laws – such as those relating to minimum wage, overtime compensation, workers’ compensation, protection against discrimination, tax withholdings, etc. – would apply where, as of now, they currently do not.
In one of these cases involving the employee versus independent contractor issue, a California federal judge ruled on February 8, 2018 that drivers for GrubHub, Inc. – a restaurant meal delivery service – are independent contractors and not employees. The ruling in Lawson v. GrubHub Inc., No. 15-cv-05128, U.S. District Court, Northern District of California, is being hailed as an important victory for gig economy companies.
In this case, the judge ruled for Grubhub largely because the question of whether the plaintiff, Lawson, was an employee turned on how much control GrubHub exerted over the work life of its drivers. The company argued that Lawson decided when, where, and how frequently he performed door-to-door deliveries, and thereby controlled not only when he worked, but also how much he earned. Mr. Lawson alleged that GrubHub misclassified him as an independent contractor in violation of California’s minimum wage, overtime, and expense reimbursement laws. The judge however found that although some factors weighed in favor of concluding that Lawson was an employee of GrubHub, the balance of factors weighed against an employment relationship, concluding that Lawson was instead an independent contractor.
The court’s decision was guided by the California Supreme Court’s multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989), which focuses on “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” Among other things, the court found that Grubhub did not control how Lawson made the deliveries he decided to make or even his appearance when providing delivery services. GrubHub also did not require Lawson to undergo any training nor did it control when or where Lawson worked – that is, Lawson had complete control of his schedule and territory. And, Grubhub did not control how or when Lawson delivered the restaurant orders he chose to accept. Whereas GrubHub controlled some aspects of Lawson’s work, such as determining the rates he would be paid, the court gave those minimal weight. The court concluded that “the right to control factor weighs strongly in favor of finding that Mr. Lawson was an independent contractor.”
The celebration by California gig economy companies may however be short-lived. The California Supreme Court is expected to rule soon in a pending employment case in a way that is likely to upend the Borello standard. Two days before Judge Corley ruled in Grubhub, the justices of the state’s high court heard argument in Dynamex Operations v. Superior Court of Los Angeles concerning whether to replace the Borello standard with a test that would make it easier for workers to show that they are employees rather than independent contractors. The anticipated ruling will be significant for any entity using independent contractors in California and may have broader implications to other companies whose business models are built on pairing customers with products and services through smartphone or Internet-based platforms. For now, employers should be aware that there is not one factor to determine independent contractor status, but that the court will look at a combination of factors, which ultimately come down to the level of control an employer exerts over the worker.