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On February 8, 2018, in what is believed to be the first time a gig economy case has been fully decided on the merits, a California federal judge ruled in favored in favor of the company and held that the delivery driver was properly classified as an independent contractor.

The opinion of US Magistrate Judge Jacqueline Scott Corley states that “[a]fter 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.”

In rejecting the driver’s claim that he was actually an employee entitled to minimum wage, overtime and other benefits associated with employee status, the Court awarded the gig economy a significant victory.

Key to understanding the impact of this case is appreciating how the Court’s decision turned on a highly fact-specific analysis of the application of the Borello test. In Judge Corley’s 33-page long opinion, she carefully weighed all of the factors under the Borello test.

The Borello test is a multifactor test originally set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relation, 48 Cal.3d 341 (1989). Under the test, the party seeking to avoid liability has the burden of proving the person whose services have been retained are independent contractors rather than an employees. And, the most important factor under the test, is control. Borello recognizes that the right to control work details is the “most important” or “most significant” consideration, but also weighs several secondary factors:

  1. Whether the one performing services is engaged in a distinct occupation or business
  2. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision
  3. The skill required in the particular occupation
  4. Whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work
  5. The length of time for which the services are to be performed
  6. The method of payment, whether by the time or by the job
  7. Whether or not the work is a part of the regular business of the principal
  8. Whether or not the parties believe they are creating the relationship of employer-employee.

Here’s a look at how the Court applied some of the specific facts of the case to the Borello factors:

  • Company did not control how driver made deliveries
  • Company did not control the condition of the mode of transportation; never inspected or even saw a photo of the car
  • Company did not control driver appearance; driver could wear a company shirt and hat but was not required to do so; not required to have any signage on his car
  • Company did not require driver to undergo any particular training or orientation
  • Company did not tell driver what supplies, if any, to have with him
  • Driver — not company — controlled whether and when driver worked
  • Company did not control how and when driver delivered the restaurant orders that he chose to accept; driver picked his own route
  • Company did not evaluate driver’s performance
  • Company determined rates driver would be paid and the fee customers would pay for delivery
  • Company determined which scheduling blocks to make available for driver selection
  • Company determined geographic boundaries of the delivery zones and required drivers to stay within their zone
  • Company had the right to terminate agreement with driver (but driver delivered for other companies, pursued another career while driving for company, didn’t have to purchase specific equipment or tools, etc. so Court concluded, “[i]n these circumstances, Grubhub’s right to terminate at will is neutral in the right to control analysis.”
On balance, the Court concluded, “[t]he right to control factor weighs strongly in favor of finding that Mr. Lawson was an independent contractor.”
Distinct Occupation or Business
  • Driver was not engaged in a distinct occupation or business
Weighs in favor of an employment relationship.
 Whether the Work is Performed Under the Principal’s Direction or Supervision
  • Driver did not have a supervisor
  • Driver did not report to anyone at the company; never met anyone in person at the company
  • Not supervised in any other way
Weighs in favor of an independent contractor relationship.
Skill Required in the Occupation
  • No special skills needed
Weighs in favor of an independent contractor relationship.
Provision of Tools and Equipment
  • Driver provides his own mode of transportation, smart phone and food bags
  • Company does not provide, finance or require any specific equipment or tools
Weighs in favor of an independent contractor relationship.
Length of Time for Performance of Services
  • Minimal; driver made deliveries for 4 months, and only on approximately half the days during those months for block of 4 hours or less
  • Company had no expectation driver would register for any particular block on a given day
Weighs in favor of an independent contractor relationship.
Method of Payment
  • In theory, company paid driver per delivery, but in practice, paid driver by a minimum hourly rate
Weighs slightly  in favor of an employment relationship.
Whether the Work is Part of Grubhub’s Regular Business
  • Food delivery may not be the company’s only or primary business, but it is a regular part of the business in the market where the driver worked
Favors of an employment relationship.
The Parties’ Intent
  • Company identifies the agreement as strong evidence of the parties’ intent to create an independent contractor relationship
The label placed by the parties on their relationship is not dispositive; this factor is neutral in the Court’s analysis.

In the end, the Court concluded that “[a]fter considering all the facts, and the caselaw regarding the status of delivery drivers, the Court finds that all the factors weighed and considered as a whole establish that Mr. Lawson was an independent contractor and not an employee.”

So What’s Next for the Gig Economy?

The decision is undoubtedly a big win for gig companies and other businesses reliant on a contractor model, but take it with a grain of salt. The Court’s emphasis on the facts specific to this case and Grubhub’s particular relationship with its drivers mean this decision will not universally apply to all companies hiring independent contractors as a matter of course. Instead, every single outcome will hinge on the specific facts of the case.

Further, the California Supreme Court could very well moot this decision in Dynamex Operations West Inc. v. Superior Court. In Dynamex, the Court has agreed to consider whether to replace Borello with a test that would make it easier for workers to show they are employees rather than independent contractors. Oral argument were heard earlier this month and a decision is expected within the next 90 days.

Judge Corley hinted that the question may be one appropriate for the legislation. “Under California law whether an individual performing services for another is an employee or an independent contractor is an all-or-nothing proposition,” she wrote. “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.” We’ve yet to see any significant advances by the Legislature on this issue.

Given that the state of the law is still in flux in California, we recommend that companies continue to closely examine how they classify workers and how they treat independent contractors.

For more information, please contact your Baker McKenzie lawyer.