Gig Worker Qualifies as an Employee, California District Court Concludes

​A Grubhub delivery driver in California recently won his case to be classified as an employee, rather than an independent contractor. It's one of the first misclassification cases in the nation to be decided in favor of a worker.

The U.S. District Court for the Northern District of California ruled on March 30 that the driver should be classified as an employee who is entitled to overtime pay and minimum wage protections under state law.

The court ruling is "more of a warning shot to show the consequences of failing to comply" with state rules on employee classification, said Bryan Hawkins, an attorney with Stoel Rives in Sacramento.

Theane Evangelis, an attorney with Gibson Dunn in Los Angeles who represented Grubhub, said, "We disagree with the court's ruling and are considering our legal options. Thanks to Proposition 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."

Background

Raef Lawson, who worked as a delivery driver in 2015 and 2016, claimed Grubhub improperly classified him as an independent contractor and therefore violated California's minimum wage, overtime and employee expense reimbursement laws. Lawson's contract did not restrict his ability to work for others or require him to be available for a specific amount of time. Instead, drivers selected their shifts, typically centered around mealtimes. Grubhub did not reimburse Lawson for expenses incurred for fuel or for his cellphone.

On Feb. 15, 2016, Grubhub terminated its agreement with Lawson because he had not performed delivery services during a high proportion of the shifts for which he had signed up. Grubhub had about 4,000 delivery drivers in California in 2016, according to court documents.

On Feb. 8, 2018, a district court held that Lawson was properly classified as an independent contractor. While the case was pending in appeals, the law changed in California to incorporate a three-pronged test, the "ABC test," to determine whether a worker is an employee or an independent contractor. That test was established in a court case called Dynamex Operations W., Inc. v. Superior Court.

In March, a California appeals court concluded that ride-hailing and delivery companies could continue to treat their California drivers as independent contractors. The court mostly upheld the state's Proposition 22, which said ride-hailing businesses could legally classify their drivers as independent contractors rather than employees.

That ruling didn't impact the Grubhub case because the claim took place before Proposition 22 was approved, Hawkins said.

ABC Test

California adopted the ABC test in 2018 to determine whether a worker is an employee or an independent contractor for purposes of California wage laws.

Under the ABC test, a worker is considered an employee unless the employer establishes that:

• The worker is free from the employer's control and direction in connection with the performance of the work.
• The worker performs work that is outside the usual course of the employer's business.
• The worker is customarily engaged in an independently established trade, occupation or business.

Don't assume that someone is an independent contractor because they only work one day per week or 10 hours per week. "It's irrelevant more or less how much they're working. What's relevant is what they're doing," Hawkins said.

Someone doesn't necessarily qualify as an independent contractor just because you have a contractor agreement with them, Hawkins said.

DOL Proposed Rule

In October 2022, the U.S. Department of Labor (DOL) issued a proposed rule to clarify who is an independent contractor under the federal Fair Labor Standards Act (FLSA).

The DOL is proposing to rescind a 2021 rule in which two core factors—control over the work and opportunity for profit or loss—carried greater weight in determining the status of independent contractors. Under the new proposed rule, employers would use a totality-of-the-circumstances analysis, in which all the factors do not have a predetermined weight.

"I expect that it will be pushed through in pretty much the form that it was proposed," said Rob Boonin, an attorney with Dykema in Ann Arbor, Mich.

Some gig workers want to be employees, while others prefer to remain independent contractors because of the autonomy and flexibility in hours. Independent contractors generally have more flexibility than employees, while employees have more legal protections and benefits.

"It's to the company's benefit to have these people be contractors" because then they don't have to provide meal and rest breaks and overtime pay," Hawkins said.

In cases of employers misclassifying workers, "you see it with drivers. You see it a lot with positions that are very transactional. There's lots of turnover, and the workforce is generally younger," Hawkins said.

"This is a hot issue in the courts," Boonin said. "The companies have been more successful than unsuccessful" in the court cases.