California Grubhub Driver is Independent Contractor, Not Employee

From Comp Standpoint: Are Uber, Lyft & Grubhub Truly “Disruptive?”

Lamenting that in California, a worker’s status as an employee, vis-a-vis an independent contractor, is an “all-or-nothing proposition,” a U.S. Magistrate Judge, presiding over a bench trial in the Northern District of California, has reluctantly determined that an aspiring actor, who moonlighted as a Grubhub driver for four months in late 2015 and early 2016, was an independent contractor—not an employee—and, accordingly, was not subject to California’s minimum wage, overtime, and employee expense reimbursement laws [see Lawson v. Grubhub, Inc., 2018 U.S. Dist. LEXIS 21171 (N.D. Cal., Feb. 8, 2018)].

The decision echoes a refrain heard from various parts of the workers’ compensation world and beyond, that existing laws are inadequate in handling the disruptive influences of Uber, Lyft, Grubhub, and other firms within the so-called “gig economy,” whose work forces are often made up largely of episodic, part-time workers. And yet, are existing laws really so inadequate? Are gig economy firms actually so disruptive that the workers’ compensation framework is not equipped to handle the issues presented? Do we really need some new third category of worker to respond to Uber and Grubhub? I argue below that the gig economy is not nearly as unique and troublesome as some would have us believe. Moreover, lessons from the distant past should show us that existing laws are more than sufficient to meet the demands of today and tomorrow.

Lawson v. Grubhub, Inc. – Background

As most of us know by now, the Grubhub business model is somewhat like that of Uber/Lyft. Instead of putting drivers and passengers together, however, Grubhub links restaurants and hungry take-out patrons. Lawson, an aspiring actor, writer, producer and director, was one such driver for Grubhub in Southern California for four months in late 2015 and early 2016.

Lawson completed an online application to make food deliveries for Grubhub and submitted the required documents: a driver’s license, vehicle registration, and vehicle insurance. Prior to performing Grubhub food deliveries, Lawson had already worked for other so-called “gig economy” companies, including Lyft, Uber, Postmates, and Caviar. Driving for these companies was appealing, because the flexible scheduling allowed Lawson to pursue his acting career. Lawson continued to deliver food for Postmates and Caviar during the four months he was delivering for Grubhub.

In his lawsuit against Grubhub, Lawson complained that the firm improperly classified him as an independent contractor. rather than an employee under California law, and in doing so violated California’s minimum wage, overtime and employee expense reimbursement laws.

Bench Trial: Lawson Was Independent Contractor

The parties stipulated to a bench trial. Judge Corley indicated the critical question was whether, under California’s common law Borello test [see S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341, 256 Cal. Rptr. 543, 769 P.2d 399 (1989)], Lawson was an employee or an independent contractor. After considering all of the Borello factors as a whole in light of the trial record, Judge Corley found that Grubhub had satisfied its burden of showing that Lawson was properly classified as an independent contractor. The judge noted that while some factors weighed in favor of an employment relationship, Grubhub’s lack of all necessary control over Lawson’s work, including how he performed deliveries and even whether or for how long, along with other factors persuaded the Court that the contractor classification was appropriate for Lawson during his brief tenure with Grubhub.

Judge Corley’s Lament

Judge Corley concluded her decision by noting that under California law, whether an individual performing services for another is an employee or an independent contractor is “an all-or-nothing proposition” [Opinion, p. 59]. If Lawson was an employee, he had rights to minimum wage, overtime, expense reimbursement and workers compensation benefits. “If he is not, he gets none” [Opinion, p. 60]. Although finding that Lawson was not an employee, Judge Corley took a parting shot at the current state of affairs when it comes to business models like those of Uber/Lyft and Grubhub:

With the advent of the gig economy, and the creation of a low wage workforce performing low skill but highly flexible episodic jobs, the legislature may want to address this stark dichotomy [Opinion, p. 59].

Address the “Dichotomy,” How?

Judge Corley and a number of other commentators appear to argue that the gig economy is so new, so different, and so disruptive that the binary mechanism we have utilized for the past hundred years—i.e., employee or independent contractor status—should give way to the creation of some third category of worker.

Some have referred to this new category as “dependent contractor,” although one is left to wonder what factors or issues make the gig economy worker any more “dependent” than the rest of us. Aren’t many—most of us—for example, “dependent” upon being paid for our work. Many firms, in turn, are dependent upon service providers, be they employees or contractors. Are they to be called “dependent employers?”

Exactly how should the legislature address the dichotomy? Would this third category of worker receive workers’ compensation benefits following a work-related injury, but perhaps not be entitled to minimum wage or overtime protection? Would the mix between the primary benefits identified by Judge Corley—minimum wage, overtime protection, and workers’ compensation coverage—be split among gig workers in some other fashion? Would the “dependent employer” be responsible for some portion of the dependent employee’s social security/self-employment tax liability? Would the dependent contractor/quasi-employee be entitled to mandatory medical insurance coverage in the same fashion as “true” employees? Would he or she receive unemployment compensation at the end of the gig? With regard to various government regulations that are based upon the size of the employment staff, would she be counted as an employee, or not?

Indeed, it’s easy to say we need some third category. It’s quite a different thing to say how we would determine who fits within this new category and who does not. And since there would be a new, third category of worker, it seems likely that there would be even more litigation—not less—in determining within which of three categories a specific employee fit.

Is Uber Really So Disruptive?

All this begs the question: “Is Uber really so disruptive?” Is the gig economy so revolutionary, so unusual, so axis-shifting, so “whatever,” that we need to jettison the “all-or-nothing” characterization between employment status and independent contracting? Have we ever faced such a difficult decision?

Well, believe it or not, we have! The so-called “disruptive impact” of technology has been successfully weathered before by the workers’ compensation world.

Consider Uber’s Nemesis: the Cab Company

One hundred years ago, at the time state workers’ compensation acts were coming into being and cars were becoming more abundant, urban dwellers had two options if they needed a cab. They could hail one on the street, or they could order one from a cab stand. If one was fortunate enough to have a telephone—few were—one could call a cab company and a cab would be dispatched from the nearest cabstand. For those without phones, there were “call boxes” at spots along the streets, from which one could ring the cabstand. In Chicago, for example, Checker Taxi owned cabstands all over the city.

The Great Depression of the 1930s brought new turmoil into the taxi trade as cab driving became a back-up job for waves of unemployed “on demand” workers. Car dealers, having trouble finding buyers, promoted cars as “job-creators.” One ad read, “Buy a car and get an instant job, driving your car as your own taxicab!” It all sounds a bit like Uber, doesn’t it?

You Want Disruptive?

Then something truly disruptive happened: the invention of the relatively small, reasonably priced, two-way radio. Small enough to be fitted within an automobile, it allowed cab drivers to be dispatched from wherever they were. They were no longer tied to the cabstands. The driver could be on the street and in the neighborhoods, getting the next fare via the radio.

Owning expensive real estate, sprinkled all over the urban landscape, suddenly went from producing a competitive advantage to being a financial burden, especially as more and more Americans began to have home telephones. Cab companies proudly included “Radio Dispatched” in their logos. Some still do.

The two-way radio served much the same function as the Uber “app.” It brought riders and drivers together via a medium. Like the app that would come along in the 21st Century, the two-way radio allowed drivers and riders to get together in a much more efficient fashion than ever before. Importantly, it allowed cab companies and drivers to associate themselves with varying elements of control being held by the company and varying levels of flexibility, in terms of hours and work conditions, being within the discretion of the drivers. And did those within the workers’ compensation world cry, “Foul! We need a third category of worker?”

Cab Driver Cases Spawned Line of Decisions Similar to Borello

No, the workers’ compensation world produced a line of cases setting up Borello-like factors to determine whether the driver as an employee or independent contractor [see Larson’s Workers’ Compensation Law, §§ 60.01, 61.08, 62.03, 63.01]. In those instances in which the company exerted significant control—where it dictated schedules and geographic areas, required uniforms, signage, and the like—the driver was often deemed to be an employee. Where the level of control was minimal, the cab driver was determined to be an independent contractor. Some right-to-work states, such as North Carolina, tended to favor independent contractor status. Labor-oriented states, such as Illinois, often favored employee status. “You say tom-a-to, I say tom-ah-to.” That’s actually the way our system best works.

Why Does California So Dislike Independent Contractors?

As mentioned above, Judge Corley laments the “the creation of a low wage workforce performing low skill but highly flexible episodic jobs” [Opinion, p. 60]. One might ask, “What does the judge have against aspiring actors?” Stated it somewhat differently, why shouldn’t a person be free to choose a lower paying “gig” that also provides a flexible schedule? Why must everyone be an employee?

Can we not see that part of the compensation package provided by Grubhub to Lawson was its flexible schedule? Those my age will remember the lyrics penned by Burt Bacharach and Hal David in 1969, sung by Dionne Warwick:

In a week, maybe two, they’ll make you a star [from “Do You Know the Way to San Jose?”].

As the song goes on to say, “Weeks turn into years; how quick they pass!” While those weeks were passing, if Lawson had a promising audition, he was free to attend it, without fearing the loss of a less flexible employment position. Why is it that “skilled,” highly paid (at least theoretically) persons—e.g., attorneys, physicians, architects, and some business consultants—are allowed the freedom and flexibility of independent contractor status, but those whose search is for stardom—and yet, who must live and eat until they are discovered—should not be similarly free to work within a flexible environment?

Dichotomy—Trichotomy, Where Does It End?

Moreover, if Judge Corley’s logic is correct, if we need something to replace the “stark dichotomy” of employee vs. independent contractor status, what makes us so sure a new “trichotomy” will be sufficient? Instead of three categories, why not four? Why not six, or 38? How many categories are optimum and how are the “benefits” to be divided among them? As we throw out the bath water, let’s be careful not to throw out the baby. Borello, and cases like it around the country, have served us quite well for decades.

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