The ABCs of Worker Classification

Workers are traditionally classified as either employees or independent contractors. Gig economy workers are generally classified as independent contractors by the companies. However, we have recently seen both the Courts and state legislatures struggle with this dichotomy as it is applied to gig economy workers, who primarily work as rideshare or delivery drivers.  

On March 30, 2023, a federal district judge for the Northern District of California in the case Lawson v. Grubhub Holdings Inc., Case No. 3:15-cv-05128, ruled that a Grubhub delivery driver is an employee, not an independent contractor, for minimum wage and overtime claims, under the ABC test. 

Listen to this week's episode for the details on this ruling.

Transcript

KHS    Kenton H. Steele, Esq.

ZBP     Zachary B. Pyers, Esq.

KHS

            Welcome to today’s episode of the Reminger Report Podcast on Emerging Technologies.  I’m here with my partner Zach Pyers, and we’re going to be talking today about a recent decision related to the gig economy space and cover some of the fallout and what the impact of this decision is, so Zach, can you please tell us a little bit about the decision we’re here to talk about today?

ZBP

            Absolutely.  This is the Lawson v. Grubhub Holdings case, and it actually is a, it’s a Federal District Court case out of the Northern District of California and it actually dates back to 2015, so as I’m sure you can imagine and our listeners/viewers can appreciate, this has been an ongoing legal dispute now for quite a while.  And so at the crux and kind of the issue here was, is whether or not Grubhub, a Grubhub driver, so somebody who was delivering, you know, means from restaurants on behalf of Grubhub is an independent contractor or an employee, and I know we have talked about this at length on this podcast and this series.  You know, this is an ongoing discussion and issue within the gig economy, and so California used a specific test essentially to make the determination as to whether people, whether individuals were, or workers were independent contractors or employees.  And so when the case was originally brought, California was utilizing a specific test called the “Borello test,” and at the time, the court used that test to determine that the individual was, in fact, an independent contractor and thus could not proceed with what their underlying claim was is that they weren’t receiving proper compensation, and so, you know, when we talk about the, the dichotomy between independent contractor and the employee relationship and kind of how these are two separated.  Usually we see this play out in two different scenarios.  One is the employment law aspect of this which is what was going on here in the Lawson case, right, is that an employee was seeking certain protections or benefits under employment law from their employer or person who had hired them.  And so, but the other aspect and time that we see this play out is in a tort law context where somebody is arguing that there is an employee/employer relationship and therefore what we call respondeat superior, meaning that the employer has to answer for the tortious actions of the employee.  So that’s not what was going on in Lawson and, but what we see is that California changed their law as to exactly which test is supposed to be used to determine whether somebody is an employee or an independent contractor, and they moved away from the Borello test and moved to what we, is referred to as the “ABC test.”  Now, that is a very long list of factors that people use to kind of analyze and make a determination, or, and courts use to analyze and make a determination whether somebody is an independent contractor or an employee, and what Grubhub, I mean, Grubhub argued a number of things when the court reexamined the relationship under this ABC test.  The first thing, well one of the first things that Grubhub argued was that this was really a business-to-business type relationship where they were connecting restaurants with delivery drivers and that the delivery drivers were, in fact, kind of operating as their own independent business, and the court analyzed the two factors argued by Grubhub and they said that one of the things they looked at was that the individual delivery drivers were not advertising their services outside of the Grubhub app.  The other thing was with regards to setting rates, and that was that the individual delivery drivers were not setting their own rates, right.  The rates for the services were set and, were set by Grubhub.  Now one of the things that we have also seen is, and a kind of a continuous argument that we’ve seen raised in the gig economy space was Grubhub was arguing that it merely connects restaurants with diners to facilitate food orders and that the delivery drivers are really just kind of part of the connection that they’re making and they’re not, and that Grubhub as a, a technology company is not, in fact, doing the delivery services, right, and so this is an argument that’s been raised by a lot of gig economy companies in a kind of a variety of capacities that they have tried to distinguish themselves from actually the services that either directly related to or tangential to their services, to the, to their business and instead kind of have made the argument that they operate more as like a phone book, right, they’re just connecting market participants and market participants and they’re not there themselves.  They’re not actually directly offering the service, and what the court ruled and kind of held was that Grubhub really could not show that the drivers were unnecessary to their business activities, meaning that the drivers that were being utilized by Grubhub were directly related to the service that Grubhub was offering, i.e. the delivery of meal services, and so the District Court concluded that they were, in fact, in this case were, in fact, an employee and could then present a claim for, an employment law claim for, under the unfair compensation, so they were seeking overtime compensation and, and minimum wage-type compensation, and so the court said those type of claims can be presented against Grubhub because they are, in fact, an employee.

KHS

            And thank you for that explanation of what this decision was.  Why is this decision important?  Why should we care about it?

ZBP

            Right.  So, you know, one of the things we’ve spent a long, kind of, time talking about on this podcast is this, the kind of the, the dynamic of the gig economy companies and the dichotomy of the employee and independent contractor relationships that have been tried to be maintained in this space.  And so, one of the things that we see is that, you know, most of the gig economy companies classify their workers as independent contractors.  Most of the service agreements that are signed by gig economy workers indicate that per the terms of service that they recognize they’re independent contractors, they hold themselves out as independent contractors, and they essentially concede to being independent contractors.  Well, this is the first time, or I shouldn’t say the first time, but this is one of the most recent and prominent decisions that’s come out under this test that says no, that those type of agreements that have been utilized don’t necessarily, are not the end-all, be-all, and the court’s going to take a deeper look at the specific relationship to make this type of determination.  And so, that’s kind of why it’s important, and as I indicated, you know, these arguments have been raised in the employment law context like we see here, but I also think that there is a possibility, and it’s important because we may start to see similar arguments be raised in a tort law context, and so it’s kind of one of those things, you know, that we may start to see this argument be raised and we may start to see this decision be looked at for that reason.  Now again, this is under California law, and so it is kind of, I don’t want to say that this decision necessarily applies to all, you know, 50 states because it doesn’t.  This is really under California law that it looked at this.

KHS

            So where do we go from here?  What do we expect to see next in this landscape, you know, kind of following this decision?

ZBP

            Yeah, so one, a couple things that, I mean, I think that we see and we’re going to look at is, (1) the is, one is the, is as it relates to the, the fact that this is a trial court decision, right.  I, I mean it’s a federal court trial court decision but likely there’s going to be some sort of appeal and so it is, it’s likely that we see an appeal from the Northern District of California to the Ninth Circuit Court of Appeals.  I would suggest that that is probably inevitable, so while this question, while this question, while this opinion is important and certainly newsworthy, it’s probably not the end of this story, right, and so I, I anticipate that there’s probably going to be an appeal to the Ninth, Ninth Circuit Court of Appeals.  There could also be another appeal after that depending upon, you know, where it lands to the U.S. Supreme Court.  That’s certainly a possibility.  The other thing that I, I think that you might see is, we might start to see these arguments be raised, and like I said, in other jurisdictions and in other contexts, whether it’s the employment law or in the tort law, and we might start to see this decision be cited for the proposition that gig economy companies, the individuals are potentially employees.  Now, again, different states utilize different tests, and so, you know, exactly how it plays out under the different states, you know, and under the different laws or the different contexts could be different and certainly could have different applications, but the fact that, you know, one court has held this, we may start to see this argument be raised with more frequency.

KHS

            Right, well, Zach, thank you very much for that explanation and thank you again to our viewers and listeners for joining us for this installment of the Reminger Report Podcast on Emerging Technology.  Be sure to stay tuned as I’m sure we’ll be providing more updates as there continue to be legal developments in this gig economy space.  Thank you.