Changes in Calif. classification law nix Grubhub trial win

3 minute read

A rider for "Grubhub" food delivery service rides a bicycle during a delivery in midtown Manhattan following the outbreak of the coronavirus disease (COVID-19) in New York City, New York, U.S., July 9, 2020. REUTERS/Mike Segar

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  • Judge ruled for Grubhub after first trial of its kind
  • 9th Circuit said claims must be reconsidered under new standard
  • Driver seeking minimum wage, overtime, expense reimbursements

(Reuters) - A U.S. appeals court on Monday said a California federal judge must reconsider her ruling that Grubhub Inc was correct to treat a delivery driver as an independent contractor rather than an employee, in light of a major shift in state law governing worker classification.

A unanimous three-judge panel of the 9th U.S. Circuit Court of Appeals said that because a strict classification standard adopted by the California Supreme Court in 2018 was retroactive, the federal judge must apply it in a case brought by former Grubhub driver Raef Lawson.

Many lawsuits have been filed accusing "gig economy" companies of misclassifying workers, and the Grubhub case was the first to go to trial. But the 9th Circuit panel said rather than applying the new classification test now, U.S. Magistrate Judge Jacqueline Scott Corley should review it first.

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Chicago-based Grubhub and its lawyers at Gibson, Dunn & Crutcher did not immediately respond to requests for comment. Nor did Shannon Liss-Riordan of Lichten & Liss-Riordan, who represents Lawson.

Worker classification is a key legal issue for gig economy firms, whose business model relies on using independent contractors. A company must pay its employees the minimum wage and overtime and reimburse them for expenses, among other costs.

Lawson in a 2015 lawsuit claimed Grubhub owed those protections to delivery drivers because the company controlled when they worked and how they performed their jobs.

Corley in 2018 denied Lawson's class certification motion, saying he was one of only two drivers in California to opt out of an arbitration agreement with Grubhub and thus did not adequately represent the proposed class.

The judge then held a bench trial on the classification issue and sided with Grubhub. She said the company did not supervise Lawson or tell him which days to work, what kind of transportation to use or what routes to take.

Weeks later, the California Supreme Court in Dynamex Operations West Inc v. Superior Court said that for companies to defeat claims that they misclassified workers as independent contractors, they must prove the workers are not under their direct control, do not perform a core function of their business and are engaged in an independent business.

The California legislature codified the so-called "ABC test" into state wage law in 2019. And last November, voters in the state approved a ballot measure exempting "gig economy" companies like Grubhub from the law's scope.

The 9th Circuit had paused Lawson's appeal while those events unfolded, and heard oral arguments in June.

Grubhub was backed by business groups including the U.S. Chamber of Commerce, which said in an amicus brief that Grubhub and other "Internet platforms" are not employers because they merely connect workers with customers rather than direct how work is performed.

The 9th Circuit on Monday upheld Corley's ruling denying class certification, which Lawson had also appealed.

But the court said Corley should have the chance to apply the ABC test to Lawson's claims, and decide whether exemptions in the state law apply to Grubhub, before the appeals court does.

The panel included Circuit Judges William Fletcher, Paul Watford and Daniel Collins.

The case is Lawson v. Grubhub Inc, 9th U.S. Circuit Court of Appeals, No. 18-15386.

For Lawson: Shannon Liss-Riordan of Lichten & Liss-Riordan

For GrubHub: Theodore Boutrous and Theane Evangelis of Gibson, Dunn & Crutcher

Read more:

Case to Watch: 9th Circuit to consider if worker classification tests apply to 'gig economy'

Judges say Grubhub driver's rights survived biz-friendly law

U.S. judge says Grubhub driver was independent contractor

Grubhub case could be barometer for new rules on independent contractors

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Dan Wiessner (@danwiessner) reports on labor and employment and immigration law, including litigation and policy making. He can be reached at daniel.wiessner@thomsonreuters.com.