Federal Judge Wants to Punt Grubhub Labor Spat to State Court

SAN FRANCISCO (CN) – A state court ought to decide if Grubhub must prove its delivery driver was an independent contractor and not an employee under a new game-changing state labor standard, a federal judge said Thursday.

“It would make the most sense to have the California courts decide this California law issue,” U.S. Magistrate Judge Jacqueline Scott Corley said during Thursday’s court hearing.

Corley referred to whether the California Supreme Court’s April 30 decision in Dynamex v. Superior Court, which established a new test for determining one’s employment status, should apply retroactively to a Grubhub labor dispute.

Former Grubhub delivery driver Raef Lawson asked Corley to issue an indicative ruling telling the Ninth Circuit that she is willing to reconsider her prior ruling, which came down in favor of restaurant food-delivery service Grubhub. The case is currently under appeal at the Ninth Circuit.

Following a six-day bench trial last year, Corley ruled in February that Lawson was an independent contractor not entitled to employment benefits because he had too much freedom to be considered an employee under California law.

But that was before the California Supreme Court set a new standard in Dynamex that broadens the definition of employee and makes it harder for companies to classify workers as independent contractors.  The Dynamex ruling replaced a complex 11-factor test with a simpler three-pronged analysis for determining one’s employment status.

A revised ruling in favor of Lawson could set a new precedent for California gig economy workers fighting for employment benefits such as minimum wage, overtime pay and reimbursement of job-related expenses. That would deal a major setback to companies like Uber, Lyft and DoorDash that rely on the cheap labor of independent contractors to boost profits and fuel their growth.

Grubhub argues that applying a new standard retroactively would violate its due process rights and force it to re-litigate a case it already won.

“The law was settled at the time,” said Grubhub attorney Theane Evangelis of Los Angeles firm Gibson, Dunn & Crutcher.

Lawson’s attorney Shannon Liss-Riordan insisted California Supreme Court decisions always apply retroactively unless the court specifically rules otherwise.

Liss-Riordan has represented gig economy workers in multiple class actions against Uber, Lyft and other companies. Lawson’s case started as a class action, but Corley denied his motion for class certification in 2016.

If Corley granted Lawson’s motion for an indicative ruling, the Ninth Circuit would still have to remand the case back to her court before a new trial or reconsideration could begin.

The Ninth Circuit could also choose to move forward with the appeal and ask the California Supreme Court to clarify whether its Dynamex ruling applies retroactively to the case.

Additionally, Liss-Riordan wants the state supreme court to resolve another question: whether Dynamex applies to expense reimbursement claims and not just wage claims. In July, an Orange County Superior Court judge ruled in Johnson v. VCG-IS LLC that exotic dancers could pursue expense reimbursement claims under the new labor standard.

If the California Supreme Court accepts that interpretation, it could make employers liable for substantially higher damages.

“That’s the main source of damages in all these cases,” Liss-Riordan said in an interview after the hearing. “Companies shift the costs of doing business to workers.”

To prove a worker is an independent contractor under the new “ABC” test established in Dynamex, employers must show they do not directly control the worker, that the work performed falls outside the company’s usual course of business, and that the worker is “customarily engaged in an independently established trade.”

Evangelis told the judge that even if the new standard applies to Grubhub’s case, the outcome won’t change.

Corley was skeptical.

“That I can’t agree with,” the judge said. “That test is a sea change.”

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