Is the “Gig” Up? The On-Demand Economy in 2018
On February 8, 2018, Magistrate Judge Jacqueline Scott Corley found that couriers for the tech/food delivery service company GrubHub, Inc. (“GrubHub”) were properly classified as independent contractors. Judge Corley made this determination after a September 2017 bench trial. (Lawson v. GrubHub, Inc., 2018 WL 776354, at *12 (N.D. Cal. Feb. 8, 2018)).
What is GrubHub?
GrubHub markets itself as a technology company that allows customers to use its web – or smartphone-based software to order food and beverages from various local restaurants. GrubHub allows customers to order take-out as well – but that is a much smaller portion of its business model. The orders are delivered by a courier. Once a week GrubHub releases a schedule of available scheduled delivery periods called, “blocks” through its platform. Couriers can choose which “blocks” they want to work. The blocks are allocated on a first come first serve basis. The number of blocks a courier works is entirely up to the courier. A block generally consists of a two-to-five-hour period of time in which the courier can choose to work the entire block or only a partial shift. The scheduling of blocks allows GrubHub to ensure sufficient driver supply to meet the demand of customers using the platform. Couriers are also given the option to simply log-in to the platform outside of their blocks (though GrubHub disincentivizes this behavior by not providing perks or delivery guarantees for shifts started outside of a courier’s block).
GrubHub couriers log into the platform through their smartphones and can toggle their availability with the push of a virtual button. GrubHub claims this allows its couriers to perform multiple on-demand functions at the same time (e.g., driving for Uber during portions of a shift if GrubHub is not particularly busy). Couriers are only paid for the time they are toggled “available” during their shifts. GrubHub couriers can choose a delivery zone such as “Los-Angeles Metro” or “South Bay” and GrubHub will limit delivery options to those zones. GrubHub pays its couriers according to a multi-factor algorithm. The most important factors that determine payment are: (1) the percentage of accepted orders (2) the total number of deliveries and (3) the time spent toggled available. Couriers are paid on a weekly basis.
History of the Lawsuit
Raef Lawson, a former courier, was contracted with GrubHub from approximately September 2015 to February 2016. During that time he actually performed deliveries for about two months. The remainder of the time GrubHub determined he was merely gaming the system to obtain the fewest number of deliveries possible while maintaining the highest rate of payment. For example, GrubHub determined that he would schedule a two-hour shift, toggle available, and then turn his phone onto “Airplane Mode.” This would prohibit him from receiving any data (including delivery requests) during his shift, while allowing him to appear “available” to GrubHub. Near the end of his shift he would turn off “Airplane Mode”, accept an order and report through the app that he had completed the delivery. GrubHub terminated Mr. Lawson’s contract once they uncovered this conduct. Mr. Lawson sued GrubHub and alleged the company misclassified him as an independent contractor, rather than an employee. He sued on a class-basis for various violations of the California Labor Code, including claims under the Private Attorneys General Act (“PAGA”).
During the pendency of the lawsuit, GrubHub was successful in defeating class certification. The Court determined Mr. Lawson was not a typical or adequate class representative for GrubHub couriers. Mr. Lawson then proceed to litigate his claims on behalf of himself and as a PAGA representative. The Court held a bench trial in September 2017 to determine whether Mr. Lawson was an “aggrieved individual” under the PAGA – i.e., whether he was properly classified as an independent contractor or an employee.
The Court’s Post-Trial Order
Judge Corley analyzed the factors under the common law “economic realities test” as set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations 48 Cal. 3d 341 (1989) (“Borello”), in which the most significant factor (and often the most determinative factor) is whether the company controls the manner and means of the work performed.
The Court found that in this case, the manner and means factor weighed in favor of an independent contractor relationship. The Court determined that GrubHub exerted little control over the details of the couriers’ work – how they make deliveries (bike, car, by foot, etc.); and did not control the condition of the mode of transportation (aside from ensuring Mr. Lawson was a licensed and insured motorist).
The Court also held that although GrubHub requires its couriers to schedule their shifts, nothing prevented a courier from simply toggling “unavailable” during the scheduled shift. The Court concluded that Mr. Lawson had complete control over when he worked and that GrubHub could not make him work, or count on him to work even when he signed up for a scheduled shift. Similarly, the Court determined that although GrubHub provided a branded hat, shirt, and car placard, Mr. Lawson was free to wear (and did wear) what he wanted during his deliveries.
Although GrubHub could terminate Mr. Lawson’s contract at any time (with 14-days’ notice) the Court reasoned that there were many opportunities for GrubHub to terminate Mr. Lawson’s contract but chose not to do so (e.g., Mr. Lawson did not make his first delivery for nearly two months after signing up to be a courier). The Court also found the “at-will” nature of the contract was mitigated against by allowing Mr. Lawson to perform services for other on-demand companies while working for GrubHub (often during his scheduled GrubHub shifts).
One factor the Court found to weigh in favor of an employment relationship was the manner in which Mr. Lawson was paid. The algorithm for determining pay is exclusively determined by GrubHub and Mr. Lawson (and other couriers) are not given an opportunity to negotiate. When compared to other factors, however, the Court found this to be of minimal importance.
For now, the only California Court to substantively rule on the issue of “gig” economy workers has determined that, under the Borello economic reality test, GrubHub’s delivery couriers are properly classified as independent contractors. However, this area of the law is dynamic. Currently, a ruling is pending before the California Supreme Court in Dynamex Operations v. Superior Court, which seeks to determine whether the common law Borello economic reality standard or the more expansive Wage Order standard as set forth in Martinez v. Combs 49 Cal. 4th 35 (2010) applies to misclassification issues. It remains to be seen whether a California Court would come to the same conclusion under the more expansive standard. Additionally, Mr. Lawson has filed an appeal to the Ninth Circuit (Case No. 18-15386).