Grubhub Driver’s Appeal Tackles Unsolved California Gig Issues

Former food delivery driver Raef Lawson still wants payback from Grubhub Inc. in one of the earliest lawsuits to define legal fights against gig economy companies in California, even after tectonic shifts in the state’s laws surrounding worker classification.

Lawson originally sued Grubhub in 2015 for his alleged misclassification as an independent contractor. He argued he’d been denied minimum wages, overtime, and expense reimbursement—all of which apply only to employees.

He lost three years later in what was the first gig worker classification case to reach trial in California, and Lawson appealed. After years of delay, his case goes before the U.S. Court of Appeals for the Ninth Circuit on Wednesday.

A win for Lawson could force gig-economy companies to atone for their alleged misclassification of workers that occurred years before California voters approved Proposition 22 in 2020—an issue that still remains open in litigation involving Uber Technologies Inc., Instacart, and others. That ballot measure, which protects the contractor status of rideshare and delivery companies’ app-based workers, effectively prevents such misclassification lawsuits from gaining ground today.

“The long-term issue at stake is whether gig workers can recover the damage they suffered due to misclassification prior to the enactment of Prop. 22,” Lawson’s attorney, Shannon Liss-Riordan of Lichten & Liss-Riordan P.C. in Boston, said.

Lawson is acting under California’s Private Attorneys General Act, which allows aggrieved employees to attempt to recover penalties for themselves and other employees by standing in the shoes of the state attorney general. Such claims can quickly become very costly for defendants as penalties are based on the number of pay periods per worker misclassified, said Liss-Riordan, who has represented other gig workers across the nation.

If Grubhub is ordered to compensate workers for alleged earlier transgressions, that likely won’t change industry practices in a meaningful way, attorneys and academics said. However, other states seeking to crack down on gig worker status, like Massachusetts and New Jersey, may be closely watching.

“If the companies lose, it may garner the attention of other states who are looking for what to do here,” said Ken Jacobs, the chair of the Center for Labor Research and Education at the University of California at Berkeley. “California isn’t the only one with lots of these suits. The main battleground beyond getting back pay for hundreds of thousands of drivers is how it plays out and the signals it sends to the rest of the country and internationally.”

Grubhub’s lawyers are adamant that the facts of the case are as straightforward as they were at the lower court.

“Plaintiff already tried and failed to prove at trial that he is not an independent contractor, and California law is clear on this matter that drivers who use the Grubhub app are, and should be allowed to continue working as, independent contractors,” wrote Theane Evangelis, Grubhub’s lead counsel at Gibson, Dunn & Crutcher LLP in Los Angeles, in a statement to Bloomberg Law.

A Fraught History

The laws governing worker misclassification in California have fluctuated and overwritten each other repeatedly since Lawson appealed his loss in 2018.

In its landmark 2018 Dynamex Operations West, Inc. v. Superior Court decision, the California Supreme Court threw out the multifaceted, three-decade-old Borello worker classification test—under which Lawson had initially lost his case—in favor of restructuring the standard into the much more worker-friendly “ABC test.”

The new test places the onus on employers to prove a worker is a contractor. They must show that: A) the worker is free from the control and direction of the hiring entity; B) the worker performs work that is outside the usual course of the hiring entity’s business; and C) the worker is customarily engaged in an independently established trade, occupation, or business related to the work they’re performing.

The California legislature enshrined the ABC test in Assembly Bill 5, or A.B. 5, in 2019, but the passage of Proposition 22, a major win for gig-economy companies like Grubhub, severely curtailed the power of the new law.

Lawson’s 2018 appeal was put on hold until the California high court decided this past January that Dynamex could be applied retroactively. Now that it’s made it to the Ninth Circuit, the appeals court must decide the boundaries of Dynamex’s retroactivity, and whether Proposition 22 effectively wipes out Lawson’s claims.

Grubhub’s lawyers argue that the old Borello test should still apply to Lawson’s expense reimbursement claim because Dynamex covers only allegations tied to wage order violations.

They further contend that, even if the ABC test applies to that claim or Lawson’s other wage claims, they’re abated by Proposition 22.

Lawson’s attorneys countered that the ABC test applies to all of his claims, which accrued prior to the ballot measure’s enactment.

Despite the fact that a decision in favor of Lawson won’t change the law going forward in California, if it takes the Borello standard into account, it may be useful symbolically to other states with multifactor tests weighing lawsuits against app-based delivery companies like Uber and Lyft, said Catherine Fisk, a professor at Berkeley Law School.

Lawsuits in those states could use it to inform their approaches, and while laws differ significantly state by state, there may be some merit in the tactic.

Small Businesses Weigh In

Outside of the gig economy, a decision in favor of Lawson could cement damage against small businesses that was first invoked when Dynamex became retroactive, the National Federation of Independent Business’s Small Business Legal Center and the Civil Justice Association of California argued in a friend-of-the-court brief filed in support of Grubhub.

“A court ruling that the drivers who use the Grubhub app should be classified as ‘employees’ will have a chilling and destructive impact on the recovery, nay survival of many small businesses that operate as independent contractors,” wrote Kyla Christoffersen Powell, the president and CEO of the Civil Justice Association of California, in an email to Bloomberg Law. “Technology has enabled many innovative business models and created new opportunities for vast numbers of small businesses. A ruling that they can no longer operate as independent contractors will close the lid on opportunities, give rise to crippling litigation, and put many out of business.”

The decision opens up small businesses to retaliatory or frivolous lawsuits from former contractors who could take advantage of the new ABC test to win significant sums or bog down their former employers in legal filings, said Karen Harned, the executive director of the NFIB’s Small Business Legal Center. Such a major departure from precedent should only have applied prospectively for reasons of policy and fairness.

“Disgruntled employees can threaten employers with wage claims knowing that a complaint—even an unsubstantiated one—can be extremely effective in corralling employers into settling even the most frivolous of claims,” the brief states.

Berkeley’s Jacobs said there isn’t much likelihood of frivolous lawsuits from former contractors against small businesses because litigation costs for plaintiffs would likely outweigh potential rewards.

But a success in Lawson’s case “would make it easier for people who experienced wage theft to gain the compensation that was due to them,” he wrote in an email to Bloomberg Law. By bringing a claim under the Private Attorneys General Act, Lawson could get redress for other similar Grubhub workers.

Fisk added that the argument against expanding legal rights because of the threat of frivolous lawsuits can be, and is, made about any legal right.

“The more legal rights there are, the more suits there could be to enforce those rights. And some suits will be frivolous,” Fisk wrote in an email to Bloomberg Law. “It’s the price we all pay for having legal rights and a court system to enforce them.”

The case is Lawson v. Grubhub, Inc., 9th Cir., No. 18-15386, oral argument 6/9/21.