On March 30, 2023, U.S. District Judge Jacqueline Scott Corley held that Grubhub Inc. (“Grubhub” or the “Company”) wrongly classified former delivery driver Raef Lawson as an independent contractor instead of as an employee, in violation of California’s minimum wage law.
Throughout the eight-year litigation, Grubhub argued that its delivery drivers fall within the business-to-business exemption to the three-pronged classification test outlined in Dynamex Operations West Inc. v. Superior Court, that allows workers to be classified as independent contractors when they are free from the hiring firm’s control and direction. Because the Company lost money when it started its delivery service, and driver deliveries make up a small percentage of total orders placed, Grubhub claimed that its drivers were incidental to its operations.
Judge Corley, however, rejected that argument, explaining that drivers are necessary for delivery, which is a key service Grubhub offers. The Court was not swayed by the fact that Grubhub initially lost money when delivery services were introduced, as profit loss is a possibility with any new business venture, and Grubhub chose to take this calculated risk, which ultimately expanded its use.
Grubhub’s argument that driver deliveries constituted a small percentage of the Company’s total orders was also unpersuasive. The Court reasoned that under this logic, a larger company using a subset of its employees to carry out a relatively small part of its operations could deem those employees incidental, even if the function is a keystone of its operation. This would present an issue for many individuals currently classified as employees instead of independent contractors.
In explaining its holding that Grubhub drivers are employees, the Court highlighted the fact that drivers cannot negotiate their own wages and that Grubhub has a vested interest in how these drivers perform because they have direct influence over customer outcomes and return rates. Additionally, Mr. Lawson did not advertise or hold himself “out to the public as available to provide delivery services.” The court similarly rejected Grubhub’s argument that Lawson’s work for other food delivery services would qualify as this type of public self-promotion.
As a result of Lawson’s reclassification as a Grubhub employee, Judge Corely ruled that Lawson is entitled to relief on his minimum wage claim, but not on his overtime claim as Lawson never worked over 40 hours in one week.
The case is Raef Lawson v. Grubhub Inc., number 3:15-cv-05128, filed in the United States District Court for the Northern District of California.
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