Properly classifying an individual as an employee versus an independent contractor has always been a daunting task for any business/employer, especially in California. A recent U.S. district court ruling brings some clarity to the issue and a still-unresolved court case before the California Supreme Court may provide more guidance soon.
The difficulty for businesses and employers in California has been the subjective and inconsistent analysis used to determine whether an individual qualifies as an employee versus an independent contractor.
One of the most recent and closely watched cases is a lawsuit filed in California against Grubhub. Instead of settling, the parties went to a bench trial starting in September 2017 and finished closing arguments at the end of October 2017. On February 8, 2018 in the case of Raef Lawson v. Grubhub, Inc., the U.S. court for the Northern District of California held that the former Grubhub delivery driver was properly classified as an independent contractor.
Lawson worked as a restaurant delivery driver for Grubhub in Southern California for four months in late 2015 and early 2016. He complained that Grubhub improperly classified him as an independent contractor rather than an employee under California law and in doing so violated California’s minimum wage, overtime and employee expense reimbursement laws.
For years, determining whether a worker is an independent contractor or an employee has been governed by the multi-factor test found in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341. This test focused on whether the person to whom service has been rendered has the right to control the manner and means of accomplishing the desired result. Businesses and individuals have relied on this test as they agreed to their business relationships.
According to the Borello precedent, “the principal test of any employment relationship was whether the person to whom the service is rendered has the right to control the manner and means of accomplishing the result desired.”
The district court in the Grubhub case found that:
• Grubhub exercised little control over the details of Lawson’s work during the four months he performed deliveries for Gubhub.
• Grubhub also did not control Lawson’s appearance while he was making Grubhub deliveries.
• Grubhub did not require Lawson to undergo any particular training or orientation.
• Lawson, rather than Grubhub, controlled whether and when Lawson worked and for how long.
• Lawson could decide not to work a block he signed up for right up to the time the block started. In other words, he had no obligation to perform any delivery offered to him by Grubhub even though he had signed up to work a particular block.
• Lawson had complete control of his work schedule.
• Grubhub also did not control how and when Lawson delivered the restaurant orders he chose to accept.
• Grubhub also did not prepare performance evaluations of Lawson.
In the opinion, U.S. Magistrate Judge Jacqueline Scott Corley wrote:
“After considering all of the Borello factors as a whole in light of the trial record, the Court finds that Grubhub has satisfied its burden of showing that Mr. Lawson was properly classified as an independent contractor. While some factors weigh in favor of an employment relationship, Grubhub’s lack of all necessary control over Mr. Lawson’s work, including how he performed deliveries and even whether or for how long, along with other factors persuade the Court that the contractor classification was appropriate for Mr. Lawson during his brief tenure with Grubhub.”
California Supreme Court Case
Two days before the federal court ruling in the Grubhub case, the California Supreme Court heard oral arguments in a case that will decide what definition of employee should be applied in class action lawsuits alleging that wage-and-hour violations occurred because workers were improperly classified as independent contractors.
The California Chamber of Commerce filed a friend-of-the-court brief in the case of Dynamex Operations West, Inc. v. Superior Court. The case involved a class action lawsuit brought by delivery drivers who alleged they were misclassified as independent contractors and that the misclassification resulted in unlawful denial of overtime and other wage-and-hour violations.
Despite the Borrello precedent, in 2014, a California appellate court issued an opinion allowing workers in a class action lawsuit to rely on a Wage Order’s expansive definitions of “employer” and “employee” to bolster their claim that they were misclassified as independent contractors. The Wage Order test is much easier for a worker to meet than the right to control test.
CalChamber is concerned that the appellate court’s opinion creates uncertainty as to whether any independent contracting arrangement could be created.
In a letter brief, CalChamber noted that California is one of the most challenging places in which to run a business. California businesses face innumerable compliance requirements set forth in, at times, confusing and ambiguous regulations and statutes. CalChamber urged the Supreme Court to review the Dynamex case because allowing the Court of Appeal opinion to stand will inject one more layer of uncertainty into the task of classifying workers as employees versus independent contractors, which could result in more litigation.
The California Supreme Court agreed to review the lower court decision in Dynamex and to specifically decide the following issue:
• In a wage-and-hour class action involving claims that the plaintiffs were misclassified as independent contractors, may a class be certified based on the Industrial Welfare Commission definition of employee? Or should the common law right to control test for distinguishing between employees and independent contractors apply?
Arguments were heard on February 6. The court has 90 days to rule.
The challenge employers face with regard to properly classifying individuals as employees versus independent contractors has been an issue in California for years. The growth of the gig economy has simply mainstreamed the challenge.
Many employers do not intentionally misclassify their employees as independent contractors. Rather, most employers conduct an analysis of the Borello factors referenced above to determine the appropriate classification. The significant financial consequences employers face as a result of misclassification fail to take into consideration their good faith efforts to navigate through subjective, differing and sometimes inconsistent standards.
All employers in California, including those in the gig economy, would benefit from objective standards that provide better guidance of who qualifies as an employee versus an independent contractor, but do not eliminate the option for independent contractor status altogether.