Grubhub Driver Wins Employee Status in Misclassification Row (2)

A Grubhub Inc. delivery driver is an employee, not an independent contractor for minimum wage and overtime claims, a federal judge ruled Thursday.

The closely watched ruling is the latest for the app-based platform that argues food delivery was a minor part of its business. Grubhub maintains it’s a marketing company that administers an online platform to connect restaurants to customers and facilitate online food ordering. The industry has said its financial future relies on workers being treated as independent contractors rather than employees eligible for overtime, worker’s compensation, and other benefits.

Judge Jacqueline Scott Corley of the US District Court for the Northern District of California, rejected Grubhub’s arguments that driver Raef Lawson qualifies as an independent contractor under the state’s three-part test to determine employment status. The judge last September ruled the so-called ABC test doesn’t apply to Lawson’s claim for business expense reimbursement.

Lawson “is entitled to judgment on his minimum wage claim (count two of the complaint) with damages in the amount of $65.11,” Scott Corley said. “However, Grubhub is entitled to judgment on Mr. Lawson’s overtime claim.”

“We are very excited about this ruling. I think this is the first court ruling in the country holding a gig worker to be an employee for wage law purposes,” Shannon Liss-Riordan, who represents Lawson, told Bloomberg Law Thursday via email.

“We look forward to the next phase of the case, which will involve assessing PAGA penalties against GrubHub for its misclassification of drivers for years throughout California,” Liss-Riordan added.

The court held compensable time included time performing deliveries, time when Lawson was in periods blocked out and logged as available, and in-network, but not performing deliveries. The court excluded as non-compensable windows of time that indicated Lawson was gaming the app, had gone out-of-network intentionally and wasn’t, for example, driving to pick up or deliver an order.

The court rejected Grubhub’s arguments that Lawson’s effective hourly-rate calculation shouldn’t subtract his mileage expenses. Lawson was paid below minimum wage in part because Grubhub required him to make expenditures on mileage. The court calculated Lawson was paid below minimum wage on nine days, with damages of $65.

“We disagree with the court’s ruling and are considering our legal options,” Theane Evangelis, counsel for Grubhub at Gibson, Dunn & Crutcher LLP, said. “It’s important to note that if the district court’s ruling stands, it means that Mr. Lawson is owed $65 for his brief use of the Grubhub app over seven years ago. Thanks to Prop 22—which California voters overwhelmingly enacted and the California Court of Appeal recently upheld—drivers who use the Grubhub app will continue to enjoy the freedom and flexibility of working as independent contractors.”

Appeal Likely

Grubhub lost its appellate bid to force arbitration under Proposition 22, the voter-approved initiative that carved out gig workers from various California labor law protections. A 2018 California Supreme Court decision, codified in legislation, made it harder for employers to classify workers as contractors.

Grubhub required Lawson to spend some amount of time available but not performing deliveries, because it structured this part of its business around on-demand deliveries, and he had to be within a reasonable distance of his designed geographic area, the court said.

“Grubhub exerted a moderate degree of control over Mr. Lawson during this time. Most fundamentally, Grubhub instructed Mr. Lawson not to reject incoming orders or be otherwise unavailable to receive incoming orders,” the judge said.

The court further rejected Grubhub’s argument that drivers could accept or reject offers without reprisal “because Grubhub did not kick them off the app at that time; Grubhub expressly terminated Mr. Lawson because he was not available and did not accept delivery offers during his self-scheduled blocks” of time, the court said.

The US Court of Appeals for the Ninth Circuit had returned the case to the trial court to determine whether Lawson qualifies under the exemption for business-to-business transactions.

Grubhub failed to meet the business-to-business exemption so the ABC test governs the minimum wage and overtime claim, the court noted. Under that test, Grubhub also failed to meet its burden that Lawson’s work delivering food was outside the usual course of business, which was connecting restaurants with diners to facilitate food ordering.

Gibson Dunn represents Grubhub. Lichten & Liss-Riordan PC represents Lawson.

The case is Lawson v. Grubhub Holdings Inc., N.D. Cal., No. 3:15-cv-05128, order 3/30/23.