When you think of having food delivered — with delivery being the key word — from a local restaurant (other than a pizza place), what company name almost always comes to mind? For many consumers, the answer is GrubHub.

“Not so fast!”, say the operators of GrubHub, who claim that the company doesn’t do food delivery. Instead, they claim the company is “the premier marketplace connecting diners with restaurants”. And that, in a nutshell, is the basis for a worker misclassification lawsuit going on right now in San Francisco federal court.

The lawsuit, Lawson v. GrubHub, was brought by a former delivery driver, Raef Lawson, who alleges that he was misclassified as an independent contractor (1099 worker), rather than a W-2 employee. Lawson claims the company treated him like an employee, and as a result, GrubHub owes him overtime pay and reimbursement of business expenses under California law. The amount Lawson is asking in his suit against GrubHub? An estimated $585.56 — small peanuts.

While the amount of money Lawson seeks is trivial, the outcome of this case could send shockwaves throughout the gig economy, and affect the employment models of companies like Lyft, Uber, TaskRabbit, Postmates, and Caviar, to name a few. In fact, TechCrunch reports that Uber’s employment counsel has taken a keen interest in the case, and has been seen attending the trial in person and taking copious notes.

What is Lawson v. GrubHub trying to prove?

In the case of Lawson v. GrubHub, the plaintiff’s attorney, Shannon Liss-Riordan, alleges that Mr. Lawson was actually an employee (not an independent contractor) of GrubHub, per the Borello test, whose purpose is to determine whether a worker is an independent contractor or an employee.

The Borello test determines whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done, and the manner and means in which it is performed. These are a few of the questions the court will need to consider:

  • Was the work being performed (delivering food) a part of the company’s core business?
  • Was special skill required to do the work?
  • Was the work done under the supervision of a manager?
  • Who provided the worker’s supplies, instruments, tools, and the place for the person doing the work?
  • What (if any) was the worker’s investment in the equipment or materials required by his or her task, or his or her employment of helpers?
  • 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.
  • What is the worker’s opportunity for profit or loss?
  • The length of time for which the services are to be performed.
  • What was the degree of permanence of the working relationship?
  • The method of payment, whether by time or by the job.
  • Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Additionally, the U.S. Supreme Court has indicated under the Fair Labor Standards Act (FLSA) that there is no single rule or test for determining whether an individual is an employee or independent contractor. The case of Lawson v. GrubHub may come down to two key considerations: how much control an employer exerts, and whether the worker is economically dependent on the business or is a business himself.

The plaintiff’s argument

In order to prove that Mr. Lawson was misclassified as an independent contractor, his attorney argues:

  • GrubHub offered incentives to drivers that maintained high acceptance rates (the rate at which a driver accepted delivery jobs via the GrubHub app). High acceptance rates made Lawson and other drivers eligible to receive a higher hourly pay rate. And a perfect acceptance rate made drivers eligible for priority scheduling and weekly bonuses. In a competitive market like Los Angeles, where Lawson worked, priority scheduling made all of the difference in a driver’s earnings.
  • Controlling who has access to the work, and the scheduling of the work, constitutes an employee relationship. The company shouldn’t deny an independent contractor access to the work.
  • Lawson alleges that GrubHub created “ghost orders” that kept drivers “on their toes”, and which affected drivers’ overall acceptance rates. Thus, drivers were under pressure to accept every order they received.
  • GrubHub encouraged its drivers to wear clothing and use supplies with its brand name, and offered incentives for doing so.
  • GrubHub’s system allowed the company to track its drivers, thus exercising a certain amount of control of the worker.
  • GrubHub holds an almost 25% share of the digital food ordering and delivery market in the United States, second only to Domino’s Pizza, making food delivery a core part of its business.

The defense’s counter arguments

The defense team in the Lawson v. GrubHub case has made several counter points in an effort to prove that Mr. Lawson was indeed an independent contractor, and not an employee of their client.

  • GrubHub argues first and foremost that food delivery is not what the company does. The company connects customers with restaurants — delivery drivers happen to be a part of a much bigger picture.
  • The company was founded in 2004, and didn’t test out food delivery until ten years later. In 2015, the company officially offered delivery as a service for the restaurants that didn’t have their own drivers.
  • The company argues that delivery is not core to its business, and its drivers have always been free to do what they want — making their own hours and not reporting to a supervisor.
  • Lawson had control over how he provided deliveries to customers, the hours he worked, and the packaging he used when transporting the food. In a statement to Bloomberg BNA, the company stated, “Raef Lawson took full advantage of the freedom and flexibility that his partnership with GrubHub afforded him by deciding when, where and how frequently he performed deliveries.”

 

Three sides to every story

You have no doubt heard this phrase: There are three sides to every story — yours, mine, and the truth.

Of course, employment law is never black and white, but there are some conclusions that can be drawn. There are also some important questions to ask about the possible implications for businesses, and for the booming gig economy.

  • If GrubHub stopped its delivery service, would the company go out of business? Is delivery indeed a core part of their business model?
  • What is the potential financial impact for companies like GrubHub if they have to move to a W-2 employment model?
  • Lawson v. GrubHub is the first case of its kind to reach a trial. Other cases have ended in settlements. If the verdict is in favor of Mr. Lawson, there could be a flood of lawsuits from other 1099 workers. A favorable verdict could also mean Lawson could make a misclassification claim on behalf of other drivers.
  • Drivers that are not classified as W-2 employees miss out on a lot — medical benefits, unemployment insurance, paid leave, minimum-wage guarantees, reimbursements for work expenses and more.

Conclusion

Presentation of evidence in phase one of this trial ended on September 15, 2017, and closing arguments will be presented on October 30. A ruling could happen as early as November. And while Mr. Lawson is asking for less than $600.00, the financial implications for businesses across the U.S. could be far greater.

The lessons provided by Lawson v. GrubHub are important for enterprise contingent workforce program managers to remember. For organizations that rely on independent contractors to get vital work done, worker misclassification enforcement is a growing area of risk and must be managed appropriately. Companies want to use independent workers such as freelancers, consultants, and contractors for project work, but they don’t want to run afoul of complex and sometimes contradicting federal and state regulations. Fortunately Independent Contractor Compliance and Engagement experts, like TalentWave, can help build and manage a comprehensive IC engagement program which enables a client company to attract and retain talent, including independent contractors where appropriate, while mitigating the risk.