Grubhub is an online platform that allows users to coordinate pick-up and delivery orders from restaurants. For restaurants that don’t have their own delivery drivers, Grubhub provides its own service to pick up orders from them and make the delivery to its customers. For employment purposes, Grubhub drivers are classified as independent contractors. In 2015, one of Grubhub’s drivers, Raef Lawson, brought a lawsuit claiming that he should be considered an employee of Grubhub and is therefore entitled to certain benefits like overtime and reimbursements. This blog post examines the potential for success of Lawson’s case and the impact a successful verdict would have on similarly-organized businesses.
Grubhub tried to extinguish Lawson’s claim via summary judgment on the ground that its delivery drivers as independent contractors. ((See Lawson v. Grubhub, Inc., No. 15-cv-05128-JSC, 2017 U.S. Dist. LEXIS 106291 (N.D. Cal. 2017).)) To prevail on this motion, Grubhub needed to show that there were no genuine issues of material fact, and that on these undisputed facts no reasonable fact-finder could reach the conclusion that there was an employer-employee relationship between Grubhub and the delivery drivers. ((See Fed. R. Civ. P. 56.)) The court noted that this was a difficult standard for Grubhub to meet. ((Lawson, supra note 1, at *9.)) On July 10, the United States District Court for the Northern District of California denied Grubhub’s motion. ((See id.)) In doing so, the court examined the services the drivers provided and the amount of control Grubhub exercised over the drivers. ((Id. at *8-18.)) According to the court, the most significant consideration in the analysis is the extent of the the employer’s right to control work details. ((Id. at *9.)) One piece of evidence that the court examined was the contract between Grubhub and the delivery drivers. The contract had an automatic renewal clause that could be terminated by either party. ((Id. at *10.)) The court stated that contracts with automatic renewal clauses are indicators of at-will relationships and at-will relationships are strong evidence of an employer-employee relationship ((Id. at *10-11.))
A second piece of evidence that the court examined was the manner in which delivery shifts were scheduled. Although delivery drivers can indicate whether or not they are available for shifts, the drivers sign up for time blocks created by Grubhub managers. ((Id. at *11.)) Once a delivery driver signs up for a block, he or she must remain available for that time period and deliver a majority of the received orders; failure to do so could result in termination. ((Id.)) The court viewed this as another mechanism by which Grubhub was able to control the details of the work provided by the delivery drivers. ((See id. at *11-12.))
Having determined that the analysis over Grubhub’s control of work details was probative of an employer-employee relationship, the court looked to secondary factors in determining its verdict. These factors are the skill requisite to performance of the occupation, whether the person performing the service is engaged in a distinct occupation or business, whether the service rendered is integral to the business, and the length of time the services are to be performed. ((See id. at *12-14.)) The court noted that performing the duties of a Grubhub delivery driver doesn’t require a special skill and one only must possess a driver’s license. ((Id. at *14.)) In addition, there is no contemplated end to a delivery driver’s service relationship as there would be when a contractor works on a house. ((Id.)) The court also observed that since Grubhub is a food ordering and delivery business, delivery drivers were essential to its business model. ((Id. at *16.))
If Lawson’s suit is successful, he could be entitled to numerous employee benefits including overtime and reimbursement for necessary expenses. ((Id. at *2.)) However, a pro-plaintiff decision in this case could have an enormous impact on other companies with “gig economy” business models like Uber and Lyft. Uber settled two cases last year that dealt with similar issues. If Lawson wins, the decision could induce even more similar lawsuits and ultimately these companies could be forced to reclassify their employees. While it could be argued that Uber, Lyft, and Grubhub are large enough to withstand the financial hit, this might not be the case. Companies like Luxe and Sprig (who already made the switch from classification as independent contractors to classification as employees) had to either overhaul their services or shut down entirely. ((Megan Rose Dickey, Grubhub trial could have major implications for the gig economy, TechChrunch (Sept. 2, 2017), https://techcrunch.com/2017/09/02/grubhub-trial-could-have-major-implications-for-the-gig-economy/.)) In an article for Recode, Carmel Deacis estimated that shifting from independent contractors to employees would cost Uber $208.7 million in California. ((Carmel Deacis, Uber Could Have to Pay an Additional 209 Million to Reclassify Its Drivers in California, Recode (July 14, 2015), https://www.recode.net/2015/7/14/11614646/uber-could-have-to-pay-an-additional-209-million-to-reclassify-its.)) And while this amount might be relatively small compared to Uber’s overall revenue, these increased costs could be passed down to consumers. Since one of Uber’s most compelling selling points is its affordability, even marginal price increases could drastically impact its overall business.
Grubhub’s trial began on September 5th and is currently ongoing. In advance of the trial, Grubhub’s C.O.O. Stan Chia stated that Grubhub wasn’t a food delivery service at all and was instead a marketplace for connecting diners and restaurants. ((Patrick Kulp, Grubhub claims it’s not a food delivery company to avoid paying drivers more, Mashable, (Sept. 8, 2017), http://mashable.com/2017/09/08/grubhub-lawsuit-trial-workers/#4mJP99b7bEq8.)) He elaborated that Grubhub was a tool that allowed users to discover new restaurants. ((Id.)) Regardless of what Grubhub defines itself as, delivery drivers are a crucial part of its business and the outcome of Lawson’s lawsuit could have major consequences for Grubhub and any company that uses a “gig economy” model.