Significant Grubhub Ruling Highlights Strict ‘ABC’ Test for Gig Workers
Workspan Daily
April 14, 2023
Key Takeaways

  • Court rules Grubhub driver is an employee. A long court battle in California ended in minimal damages for a Grubhub driver, but the ruling determined the driver was an employee of the food-delivery platform and not an independent contractor.  
  • ABC test. Using the previously established “ABC” test in California, the court found  Grubhub did not satisfy the “business-to-business" exception that could label the driver an independent contractor.  
  • Employer takeaway. The ruling has broad applicability outside of gig economy companies like Grubhub, and is considered to be the first ruling in the nation holding a gig worker to be an employee for wage law purposes. 

After eight years of litigation, a federal district court in California last week found that a Grubhub delivery driver was an employee — not an independent contractor as the company claimed — for minimum wage and overtime claims.   

The decision is widely considered to be the first ruling in the nation holding a gig worker to be an employee for wage law purposes. 

Under their business models, gig-economy employers like Grubhub expect their workers to be independent contractors who are not employees eligible for overtime, worker’s compensation and other benefits.  

While the damages were small – the driver was awarded $65.11 for wages, but not overtime, owed -- Grubhub and similar companies could find former drivers looking to file for retroactive compensation. 

Independent Contractor Versus Employee Background 

In 2015, the plaintiff, Raef Lawson, sued Grubhub for allegedly misclassifying him as an independent contractor. In 2017, a federal district court rejected Lawson’s claims. Lawson appealed.  

In 2021, after various developments in the law, (most importantly after the state introduced its new ABC standard in January 2020), the Ninth Circuit reversed the district court and instructed it to reevaluate Lawson’s misclassification claims using the new ABC test, a three-part standard for defining independent contractors in California.  

The court then found that under the ABC test, Lawson was an employee of Grubhub, which tried to assert what is called the “business-to-business” exception to the ABC test. After further briefing and oral argument, the federal district court found that Grubhub did not satisfy the business-to-business exception.  

In fact, it found that Lawson was an employee under the ABC test, and that after subtracting mileage expenses, Lawson was occasionally paid less than minimum wage.   

“Showing that a worker performed similar jobs for other employers was not enough to satisfy the business-to-business exemption,” said Bob Eassa, a partner specializing in labor and employment (L&E) in the San Francisco office of law firm Duane Morris.  

Eassa explains that California’s ABC test deems workers employees unless the worker: A) is free from the control and direction of the hiring entity; B) performs work that is outside the normal course of the hiring entity’s business; and C) is customarily engaged in an independently established trade or business of the same nature as that involved in the work performed. 

He notes that the ABC test, however, has several exemptions. One of them is the business-to-business exemption, which applies when the worker:  

  • Provides services directly to the contracting business (rather than the customers of the business). 
  • Advertises and holds himself out to the public as available to provide the same or similar services. 
  • Can negotiate his own rates.  

Eassa says that according to the Court, at least two of the requirements were missing. First, although Lawson worked for other delivery app companies, working other jobs does not constitute “advertising . . . to the public.” Second, Lawson could not negotiate his own rates, and food delivery was also deemed to be within the usual course of Grubhub’s business. 

Eassa says the second prong of the ABC test requires the hiring entity to prove that the worker is performing work “outside the usual course” of the hiring entity’s business. According to this federal district court, the usual course of Grubhub’s business is “connecting restaurants with diners to facilitate food ordering.” Delivering food, the Court reasoned, was a necessary part of this business model, making Lawson an employee. 

The Court agreed with Lawson and awarded him the minimal damages. However, in rejecting Lawson’s overtime pay argument, the court found Lawson’s time keeping records to be dishonest, according to Aaron Winn, an L&E partner in Duane Morris’ San Diego office.  

The court performed its own analysis of the actual time worked and found at no time did Lawson work over 40 hours in any week. Accordingly, Lawson’s overtime claim was denied. 

Employer Takeaway 

Employers in California that rely on independent contractors must be cognizant going forward of how the ABC test applies to their business.  

“This is an important decision for California employers to be aware of because it demonstrates how strict courts will be in enforcing the new ABC test,” Winn said. “The courts will have no sympathy for business owners attempting to hire independent contractors as a way to save on labor costs and overhead.”  

He adds that very close scrutiny will be employed by the courts in determining whether an employer can avoid the significant labor costs associated with hiring employees. With that, business owners must pay close attention to any vendors or contractors they use in business to make sure they will not be deemed to be unintended employers of those workers.  

“Employers need to take great care in hiring anyone to promote and advance their business,” Eassa advised. “Special attention must be paid to the legal requisites involved in hiring outside help.” 

He adds that the ABC test must be completely understood and applied before any hiring decisions are made, and that legal counsel should be sought to avoid the inherent risks for the unwary.  

“The perils of the ABC test can be avoided with informed planning and structuring of all hiring decisions, Eassa said. “It just takes the right thought and execution.  

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