SAN FRANCISCO (CN) - In a pivotal case for labor rights in the emerging gig economy, a federal judge on Thursday sided with Grubhub's position that its former delivery driver was an independent contractor not entitled to overtime pay and other employment benefits.
Following a six-day bench trial last fall, U.S. Magistrate Judge Jacqueline Scott Corley found former delivery driver Raef Lawson had too much freedom to be considered an employee under California law.
"Grubhub exercised little control over the details of Mr. Lawson’s work during the four months he performed delivery services for Grubhub," Corley wrote in her 33-page ruling.
Lawson, an aspiring actor in Los Angeles who worked for Grubhub from October 2015 to February 2016, argued the Chicago-based company mislabeled him as a contractor and failed to pay him minimum wage, overtime wages or fully reimburse him for job-related car and phone expenses.
Founded in 2004 as an online food-ordering service for restaurants, Grubhub launched its food delivery service in select urban markets in 2014.
In a statement issued Thursday, Grubhub CEO Matt Maloney said the company was "extremely satisfied" with the ruling, "which validates the freedom our delivery partners enjoy from deciding when, where and how frequently to perform deliveries."
This was the first known case to make it to trial in California challenging a technology firm's classification of its worker as an independent contractor. A ruling in favor of Lawson could have set a new precedent and spelled trouble for firms like Uber and Lyft that rely on the cheap labor of independent contractors to fuel their meteoric growth.
Corley found Grubhub had no control over whether and when Lawson signed up to work shifts, what vehicle he used, what routes he took for deliveries, the clothing he wore and several other factors.
The judge found Grubhub did control pay rates, when work shifts were made available, and the geographic boundaries of delivery zones. But she ultimately found that Lawson had more control than Grubhub, especially given evidence that he "gamed" the system by toggling off the app or delaying deliveries to get paid more money for fewer deliveries.
Lawson's attorney, Shannon Liss-Riordan, did not immediately return requests for comment on Thursday. But during the trial, Liss-Riordan argued that Grubhub used "incentives" to exert control over drivers. Drivers could only earn a guaranteed hourly rate of $11 to $15 per hour if they delivered 75 to 85 percent of orders, and only top performers could choose the most desirable work shifts in advance.
Applying the multi-factor test established in the 1989 California Supreme Court ruling, S.G. Borello & Sons Inc. v. Dept. of Industrial Relations, Corley found several factors weighed in favor of Lawson's argument that he should be considered as an employee.
The judge found Lawson was not engaged in a distinct occupation or business; the work he performed did not require any specialized skills; the method of payment was generally an hourly rate; and the work he did was a regular part of Grubhub's business.
But Corley found that Lawson did not report to a supervisor, that he used his own vehicle and phone for work, and that he worked far less than full time were all factors that weighed in Grubhub's favor.
Corley noted in her ruling that deciding whether a worker is an employee under California law is an "all-or-nothing proposition." She recommended that lawmakers consider addressing that issue as more and more companies turn to low-paid contractors as their primary labor force.
"With the advent of the gig economy, and the creation of a low wage workforce performing low skill but highly flexible episodic jobs, the legislature may want to address this stark dichotomy," Corley said. "In the meantime the Court must answer the question one way or the other."