In the first federal court in California to issue a rule on classification of gig-economy workers, the Northern District of California recently concluded that restaurant delivery drivers are properly classified as independent contractors instead of employees under California law.

In Lawson v. Grubhub, Inc., No. 15-cv-05128-JSC (N.D. Cal. Feb. 8, 2018), Plaintiff Raef Lawson worked as a restaurant delivery driver for Grubhub for four months in late 2015 and early 2016.  Grubhub is part of the growing gig-economy, connecting diners to local restaurants through its internet food ordering app.  Lawson brought his claims both in an individual capacity and as a representative action pursuant to the California Private Attorney General Act (PAGA).  The critical question before the court was whether Lawson was an employee or an independent contractor.

To determine Lawson’s employment status, the court applied the multi-factor test set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989).  The test concerns the primary question of “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”  Id. at 350.  The test also considers the following secondary factors: “(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.”  Id. at 351.

In applying the Borello test, the court primarily focused on the element of control, concluding that Grubhub exercised little control over the details of Lawson’s work.  Grubhub did not control the mode of transportation he used to make the deliveries, did not require Lawson to wear a uniform, did not require Lawson to undergo training or orientation, did not control who could accompany Lawson during deliveries, and did not control whether and when Lawson worked, or for how long.  The only components Grubhub did control were the rates Lawson would be paid, the availability and length of time blocks for driver selection, and the geographic boundaries of the delivery zones.  In analyzing the secondary factors, the court found that some circumstances favored an employer/employee relationship: Lawson’s work was part of Grubhub’s regular business, the work was low-skilled, Lawson was not engaged in a distinct delivery business of which Grubhub was a client, and Grubhub’s method of payment (paying Lawson an hourly minimum-wage).  However, on balance, the court found that the other secondary factors weighed in favor of independent contractor classification.  After applying the Borello test, the court found that Lawson was indeed an independent contractor during the four months he performed delivery services for Grubhub.

Order Take-Aways:

• Win for gig-economy employers: This is a big win for Grubhub and gig-economy employers.  The opinion also provides helpful guidance for companies with similar practices to use in assessing whether employees and independent contractors are properly classified.
• Not one-size-fits-all:  Gig-economy employers that impose more stringent requirements on their workers should review the opinion in applying their classification analysis.  For example, Grubhub did not require Lawson to wear a uniform or undergo training.  Gig-economy employers concerned with classification issues should consider whether they too share this hands-off approach, or whether this hands-off approach is even feasible for their business model.
• Change on the horizon: The California Supreme Court is expected to clarify California law with respect to the distinction between independent contractors and employees in Dynamex Operations West, Inc. v. Super. Ct. of Los Angeles Cty.  The Court is reviewing whether a wage-and-hour class action alleging worker misclassification can be certified based on the IWC definition of employee, or whether control should fall to the common law Borello test applied here in Lawson.  Oral arguments were held on February 6, 2018 and the Court did not seem concerned about the possibility of having multiple legal tests in play for different wage-and-hour issues.  The decision should be issued in 60 to 75 days.