Lawson v. Grubhub, Inc.

Citation: 302 F. Supp. 3d 1071Docket: Case No.15–cv–05128–JSC

Court: District Court, N.D. California; February 7, 2018; Federal District Court

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Raef Lawson, a former Grubhub delivery driver, asserts that he was misclassified as an independent contractor instead of an employee under California law, alleging violations of minimum wage, overtime, and expense reimbursement regulations. His claims are pursued individually and as a representative action under the California Private Attorney General Act (PAGA). The central issue is whether Lawson qualifies as an employee under California's Borello test. The Court determined that Grubhub demonstrated Lawson's proper classification as an independent contractor, noting insufficient control by Grubhub over his work, which supported this classification despite some factors suggesting an employment relationship.

The case originated from a class action filed by another Grubhub driver, Andrew Tan, which was later removed to federal court. Tan amended his complaint to include Lawson as a co-plaintiff and proposed class representative for the PAGA claim. Following a motion to dismiss and Grubhub's challenge to class action status based on an arbitration agreement with a class action waiver, the Court denied class action status, ruling Lawson was not a typical class representative due to his opt-out status. Subsequently, the case proceeded solely with Lawson as the plaintiff, structured into two trial phases: first addressing Lawson's individual claims and his status as an "aggrieved employee" under PAGA, and the second focusing on the PAGA claim if he was deemed aggrieved. A bench trial occurred in September 2017, with findings of fact and conclusions of law submitted by the parties and closing arguments presented on October 30, 2017. The Court has subject matter jurisdiction under the Class Action Fairness Act (CAFA), affirming that the removal complied with jurisdictional requirements, and the denial of class action status did not affect this jurisdiction. The parties agreed to the magistrate judge's jurisdiction.

Grubhub is an internet food ordering service that connects diners with local restaurants, founded in 2004 and offering delivery since 2014. It operates in 1,200 U.S. markets, with 250 in California, providing delivery services in five of those markets. As of June 2016, there were 4,000 Grubhub delivery drivers in California, and the company was expanding its delivery services significantly in 2015. Most diners in the California markets receive their meals delivered by restaurants, with an increasing percentage of deliveries being handled by Grubhub itself.

Plaintiff Raef Lawson, an aspiring actor residing in Inglewood, California, applied to deliver food for Grubhub in August 2015, providing necessary documentation. He worked as a delivery driver for Grubhub from October 25, 2015, to February 14, 2016, while also working for other gig economy companies. 

Lawson executed a "Delivery Service Provider Agreement" with Grubhub on August 28, 2015, establishing an independent contractor relationship, where he is considered a "Primary Delivery Service Provider." The agreement allows Lawson to work for other companies and does not require him to maintain a minimum availability. He has the discretion to choose his delivery days but is contractually obligated to fulfill engagements he accepts. Additionally, Lawson can employ subcontractors for delivery services, retaining responsibility for their payment.

The driver must adhere to the "Service Level Agreement" outlined in Appendix A, which includes several requirements: downloading necessary tools, signing up for weekly blocks via the Grubhub app, updating dispatchers when on call, not rejecting orders during scheduled blocks (except for communicated extenuating circumstances), providing status updates at various delivery stages, communicating diner issues, and maintaining a clean driving record (no more than one moving violation or at-fault accident in 24 months). Non-compliance constitutes a material breach.

If the driver fails to perform a delivery, follow instructions, or adhere to the Service Level Agreement, they forfeit the service fee for that job proportional to their responsibility for the failure. The driver must provide Grubhub with vehicle or bicycle details and is not required to purchase equipment but must maintain a personal smartphone and suitable delivery insulation. They have options for leasing or purchasing insulated delivery bags.

Drivers are compensated based on a fee structure of $4.25 per delivery plus $0.50 per mile, with bonuses available for fulfilling certain conditions, including availability and high acceptance rates. A minimum average payment of $15 per hour is guaranteed if they fulfill 75% of orders and are available throughout delivery blocks, barring extenuating circumstances. The agreement allows for negotiation of service fees for specific engagements but defaults to appendix rates afterward.

The Agreement is valid for 60 days and automatically renews for additional 60-day terms, affirming that it does not ensure uninterrupted service and allows the driver to choose availability. Both parties can terminate the Agreement with immediate written notice for breaches or with 14 days' notice without cause.

The Agreement signed by Mr. Lawson in August 2015 was amended by Grubhub on December 5, 2015, with Mr. Lawson's written consent. Key changes included the deletion of Section 8.1 regarding fees, replaced by a provision offering drivers a service fee for each engagement, which they could accept or reject via email or app. Acceptance obligated drivers to perform delivery services. The "Service Fees" section was also removed, leaving only the "Equipment" section, and the document's title changed to "Equipment Index." Additionally, amendments to the Service Level Agreement eliminated requirements for drivers to sign up for weekly blocks, refrain from rejecting orders, and accept orders during scheduled delivery blocks, allowing for exceptions due to "extenuating circumstances." Post-amendment, drivers were required to be reasonably close to contracted restaurants.

Regarding Mr. Lawson's onboarding, Grubhub did not mandate training, although training videos were provided without monitoring compliance. After signing the Agreement, Mr. Lawson viewed these videos, which covered app usage, etiquette, and promptness. Initially, Grubhub had driver coordinators who screened applicants and conducted background checks, a process that ended in late 2015. Mr. Lawson learned about the optional Grubhub uniform but was not compelled to wear it or use Grubhub-branded materials.

Mr. Lawson signed the Agreement in August 2015 but began deliveries two months later, a common occurrence as approximately 40% of new sign-ups do not deliver. During this period, Grubhub did not contact him. Scheduling was done through an online program called "When I Work," where drivers selected from available shifts, or "blocks," released weekly on a first-come-first-serve basis. Mr. Lawson had the autonomy to choose or forgo blocks without any assignment from Grubhub and was required to register for entire blocks, which lasted two to five hours, typically around meal times. He only made deliveries during scheduled blocks.

Mr. Lawson engaged with Grubhub by signing up for delivery blocks on 69 days from October 2015 to February 2016, completing deliveries on 59 of those days. He logged approximately 35 hours in November 2015, 105 in December 2015, 60 in January 2016, and 43 hours in the first two weeks of February 2016, with Grubhub providing "priority scheduling" to high-performing drivers, which allowed them early access to available blocks. Mr. Lawson received priority scheduling once, during the week of November 30 to December 6, 2015, when he worked 44.75 hours, the highest for any week in the four-month span.

Compensation included a per-order payment, tips, and a nominal mileage fee. Initially, if Mr. Lawson accepted 75% of offered orders during a block, he earned a guaranteed $15 per hour, known as "true up" pay. This was later reduced to $11 per hour for an 85% acceptance rate. To qualify for true up pay, drivers had to be actively scheduled; those who logged in without a block did not qualify. Mr. Lawson received his pay weekly via direct deposit, mostly meeting the hourly true up guarantee, except once when his per-delivery pay exceeded the true up amount. On five occasions where he didn’t qualify for true up, he received California's minimum wage of $9 per hour.

Mr. Lawson was responsible for his own expenses, including gas and cell phone costs. He occasionally completed deliveries beyond his scheduled blocks and sought pay adjustments from Grubhub, which were granted without further inquiry. He received the true up rate for blocks even if he toggled available late; he was often late, toggling available more than 15 minutes late for 27 blocks, over 30 minutes late for 19 blocks, and as much as three hours late for eight blocks. Despite not being available for the entire block duration, he was compensated the true up fee for each scheduled block.

Grubhub established specific delivery zones, allowing drivers to select their preferred zones when contracting with the company. Mr. Lawson initially chose the "Los Angeles-Metro" zone but later registered for the "South Bay" zone before requesting reassignment back to the Los Angeles zone. Drivers were expected to start their scheduled blocks in their designated zones, and Grubhub monitored compliance. If drivers were not in their zones and did not indicate plans to return, they could be removed from their scheduled blocks.

When available for delivery, Mr. Lawson activated the toggle on the Grubhub app. The app utilized an algorithm to assign delivery offers, which operations specialists could override. Drivers could accept or reject offers without being removed from the app. In situations where drivers faced issues completing deliveries, operations specialists could manually assign deliveries to other drivers. Grubhub could also send messages to recruit more drivers when demand exceeded availability.

Mr. Lawson was not required to follow a specific route or adhere to a time limit when picking up and delivering orders, and he used the app to indicate arrivals at restaurants and completion of deliveries. Instances were noted where Mr. Lawson took nearly an hour to complete deliveries after indicating he had picked up the food, without Grubhub contacting him for clarification. Customers experiencing issues with orders were instructed to contact Grubhub's customer service. Mr. Lawson was not obligated to carry additional customer supplies, and Grubhub set the delivery fees, leaving no room for negotiation by Mr. Lawson. While he typically wore Grubhub-branded attire, compliance with uniform requirements was not actively monitored by Grubhub.

Mr. Lawson worked as a delivery driver for Grubhub while simultaneously delivering for its competitors, Postmates and Caviar. During scheduled Grubhub blocks, he occasionally accessed the competitor apps and made deliveries for them. Specifically, in 17 out of 87 Grubhub blocks he completed, he also performed deliveries for Postmates or Caviar.

Lawson did not employ anyone to assist with his deliveries. Initially, he accepted deliveries he did not intend to fulfill in order to maintain a high acceptance rate necessary for a minimum guarantee payment from Grubhub. However, after Grubhub changed its policy to count driver-requested reassignments against the acceptance rate, he modified his strategy. He began to schedule himself for blocks while ensuring minimal delivery offers came his way, thus qualifying for the minimum guarantee even after making few or no deliveries. 

Examples of his tactics include: 

- On November 26, during a four-hour block, he remained "out of network" for most of the time, accepted one delivery offer which he likely reassigned, yet still received the full true up payment of $60 due to a 100% acceptance rate.
- On December 31, he delayed toggling to "available" for over three hours but still received a full payment of $47.63 after making a late delivery.
- On January 8, despite being unavailable for most of the block, he toggled available late and received the full true up amount of $44.
- On January 11, he reported completing a delivery after starting late, and Grubhub extended his block without acknowledging his late availability, resulting in a full payment for a 4.5-hour block.
- On January 12, he toggled available just before the end of a two-hour block and received the full true up payment of $22.

These actions demonstrate a pattern of exploiting the Grubhub system to maximize earnings while minimizing actual delivery activity.

Mr. Lawson's delivery blocks with Grubhub reveal a pattern of behavior where he frequently delayed toggling himself available, resulting in payments for blocks during which he was not actively delivering. On multiple occasions, he toggled available significantly after the start of his scheduled blocks, yet Grubhub paid him the full true up amount for those blocks. Notably, on January 15, 18, 29, and 30, as well as February 7, Lawson's actions raised questions about his availability and delivery completion, which he did not deny during trial. When questioned about manipulating the app to receive payments, he was evasive, often stating he did not recall or could not confirm specific actions but did not outright deny them. 

Grubhub terminated Lawson's contract on February 15, 2016, citing a material breach of their agreement due to his unavailability during delivery blocks. The termination notice referenced Section 3.3 of the Delivery Service Provider Agreement and was effective immediately under Section 13.1.1. Subsequently, less than a month later, Postmates also terminated Lawson's contract due to fraudulent activity, including accepting deliveries from closed merchants and failing to attempt delivery, resulting in payouts without effort.

Mr. Lawson's credibility is called into question due to his inconsistent claims regarding dishonest conduct, particularly after initiating a lawsuit against Grubhub. Evidence suggests he intentionally manipulated the app for personal gain, including switching his smartphone to airplane mode and toggling his availability. He submitted a fraudulent resume during discovery, falsely claiming attendance at Loyola Marymount University's Master of Fine Arts program for three years, despite only being enrolled for one year and not graduating. His explanations for this misrepresentation were deemed implausible and contradicted by other information on the resume, such as the start date of his employment at QED International, indicating he had updated the document after starting the program. Additionally, he applied to work for Grubhub under an alias and falsely stated he had never worked for them before, later admitting to this lie at trial.

In terms of legal analysis, for Mr. Lawson to succeed in his claims under the California Labor Code and his PAGA claim, the court must determine whether he was an employee of Grubhub or an independent contractor. This determination follows the multi-factor test from S.G. Borello & Sons, Inc. v. Department of Industrial Relations, which applies to issues related to wages and expenses. Grubhub bears the burden of proving Mr. Lawson was an independent contractor rather than an employee, as confirmed by case law.

The determination of an employment relationship hinges primarily on the right of the hirer to control how services are performed. Key secondary factors include whether the worker operates a distinct business, the nature of the work, required skills, provision of tools and workspace, duration of service, payment methods, integration of work into the principal's regular business, and the mutual belief in an employer-employee relationship. The right to control the details of work is the most critical factor.

In the case of Mr. Lawson and Grubhub, it was found that Grubhub exercised minimal control over Mr. Lawson's delivery work. He had the freedom to choose his mode of transportation without Grubhub's oversight, which only ensured compliance with legal requirements for vehicle registration and insurance. Grubhub did not dictate Mr. Lawson's appearance during deliveries; while he could wear branded clothing, it was not mandatory. Additionally, Grubhub did not provide training or scripts for interactions, nor did any employees meet Mr. Lawson in person prior to the lawsuit. This lack of control contrasts with other cases where employers imposed strict requirements on employee appearance and conduct.

Grubhub did not exert control over Mr. Lawson's delivery operations, including who could accompany him during deliveries or pickups. Although Grubhub had the theoretical right to conduct background checks on any subcontracted workers, the practical ability for Mr. Lawson to subcontract was limited due to the nature of the work and compensation structure. Mr. Lawson independently determined his work schedule, having contracted with Grubhub in August 2015 but not beginning deliveries until October 2015, during which time Grubhub never terminated his contract or sought an explanation for his inactivity. He was not bound to work a minimum or maximum number of shifts and could choose not to sign up for any deliveries based on personal commitments, such as his acting career. Mr. Lawson retained the autonomy to reject delivery offers even after signing up for a scheduled block, facilitated by a reject button in the Grubhub driver app. Prior to a contract amendment on December 5, 2015, the Agreement acknowledged his discretion to not accept all deliveries, as he was incentivized to complete at least 75% of offers to receive a guarantee. Grubhub's ability to terminate the Agreement for material breaches, such as failing to fulfill his commitments after signing up for blocks, does not negate the independent contractor relationship; it merely enforces the obligation to perform contracted work without controlling the means or manner of how that work is executed.

Grubhub’s right to cancel its contract with the landscaper does not establish an employer/employee relationship, as control over the result of work differs from control over the means and methods of performing that work. Citing Millsap v. Fed. Express Corp., the distinction is made that independent contractors are defined by the ability to control the outcome rather than the process. In the case of Mr. Lawson, Grubhub did not dictate how or when he delivered orders, nor did it impose specific time constraints for pickups or deliveries. Mr. Lawson could choose his route, make multiple stops, and even deliver for competitors during his scheduled shifts. Although Grubhub monitored delivery times and terminated contracts for excessive delays, this was still considered control over the results rather than the means. 

Mr. Lawson was able to adjust his pay for deliveries completed outside scheduled hours without oversight from Grubhub, indicating a lack of control over his work methods. Additionally, Grubhub did not conduct performance evaluations for Mr. Lawson, and while top performers received priority scheduling, this did not affect his contract. His ability to manipulate the driver app without supervision exemplified Grubhub's limited control over his work details. Although Grubhub exercised control over payment rates and customer fees, the overall lack of oversight and detailed management reinforces that Mr. Lawson remained an independent contractor, despite the eventual termination of his Agreement due to dishonest practices.

The Agreement allows drivers to negotiate their pay, but this ability is deemed ineffective, indicating an employment relationship. Grubhub controls the availability and length of delivery blocks but does not dictate the specifics of how Mr. Lawson performs his work, such as his schedule or hours. While Grubhub sets geographic delivery zones and requires drivers to remain within these areas during scheduled blocks to ensure timely deliveries, Mr. Lawson retains the autonomy to choose his delivery zone and whether to work on any given day.

The right to terminate the Agreement at will, with 14 days' notice, is a significant indicator of control and supports the notion of an employment relationship. Although Grubhub argues that the mutual termination right (both parties can terminate with notice) suggests an independent contractor status, the court finds this reasoning unconvincing. The precedent cited by Grubhub regarding mutual termination does not apply under California's Borello test for control. Moreover, the court is not swayed by other cases that suggest mutual at-will termination provisions negate an employer-employee relationship, noting a shift in the legal landscape regarding such distinctions.

The court determined that despite the at-will termination provision aligning with an employment relationship, the overall factors indicated that the plaintiff, Mr. Lawson, was an independent contractor. Citing relevant case law, the court noted that Grubhub's right to terminate at will did not grant it significant control over Mr. Lawson's work methods or schedule. Unlike drivers in previous cases where employers exercised substantial control—such as requiring specific investments in equipment, controlling routes, and dictating schedules—Mr. Lawson had the freedom to work when he chose, delivered for multiple companies simultaneously, and incurred no significant costs for equipment or uniforms. The analysis concluded that Grubhub's termination right was neutral regarding control, and thus favored an independent contractor classification for Mr. Lawson, contrasting sharply with cases like Estrada and others where employers maintained extensive oversight and control over delivery drivers.

The putative employer exercised significant control over the drivers, dictating delivery schedules, mandating attendance at daily meetings, requiring a five to six-day work week with 10 to 12-hour shifts, and necessitating manager approval for time off. Drivers' appearances and vehicles were also regulated. In contrast, Grubhub did not exert similar control over Mr. Lawson's work. The Borello secondary factors were analyzed to evaluate Mr. Lawson's classification as an independent contractor. 

1. **Distinct Occupation or Business**: This factor suggested an employment relationship, as Mr. Lawson did not operate a distinct delivery business and relied on multiple low-wage jobs, including his acting career, rather than having clients like an independent contractor would.

2. **Direction or Supervision**: This factor leaned towards an independent contractor classification, as Mr. Lawson did not have a supervisor at Grubhub and did not report to anyone, only facing termination after failing to fulfill delivery commitments.

3. **Skill Required**: This factor favored employment, as delivering for Grubhub required no specialized skills beyond basic driving abilities.

4. **Provision of Tools and Equipment**: This factor supported an independent contractor finding, since Mr. Lawson supplied his own transportation and equipment, with Grubhub not providing or requiring specific tools.

Overall, while the right to control suggested independent contractor status, the analysis of the Borello factors presented a mixed picture, with some factors favoring employment classification.

The court found that various factors related to the nature of the work relationship between Mr. Lawson and Grubhub provide mixed indications regarding whether he was an independent contractor or an employee. 

1. **Involvement in Purchasing Process**: FedEx was deemed to have a slight advantage in a related case, as it participated in the truck purchasing process. In contrast, in a taxi driver case, the provision of vehicles and tools favored the plaintiff.

2. **Length of Service**: This factor leaned toward an independent contractor classification. Mr. Lawson delivered for Grubhub for four months, working only about half the days and usually for four hours or less at a time. The Agreement had a 60-day term, was subject to automatic renewal, and allowed Mr. Lawson to cease deliveries without penalty. The classification of each delivery block as a separate engagement indicated that Grubhub did not expect a permanent relationship.

3. **Method of Payment**: This factor slightly favored an employment relationship. Although Grubhub claimed to pay per delivery, it effectively compensated Mr. Lawson by the hour, requiring him to accept a minimum percentage of deliveries to earn a guaranteed minimum hourly wage. This approach suggested Grubhub's lack of control over delivery assignments, contrasting with the expectations of an employer-employee relationship. Despite the independent contractor classification, Grubhub’s actual payment method resembled that of an hourly employee.

4. **Nature of Work**: This factor favored an employment relationship, as Grubhub’s core business involves providing delivery services, indicating that Mr. Lawson’s work was integral to its operations.

In summary, the analysis highlighted a complexity in the relationship, with certain factors suggesting an independent contractor arrangement while others leaned toward an employment classification.

Grubhub did not engage in food delivery for the first ten years of its existence, but by the time Mr. Lawson became a driver, food delivery was a significant part of Grubhub's operations in Los Angeles, surpassing the number of pickups by diners. While food delivery isn't Grubhub's primary business, it is essential for growth in urban markets. Relevant case law illustrates the distinction between Grubhub's situation and others, such as *Futrell v. Payday Cal. Inc.*, where the court found that the payroll company had no control or expertise in traffic control, contrasting with Grubhub's intentional development of a delivery service infrastructure. Similarly, in *Lara v. Workers Comp. Appeals Bd.*, the court determined that the restaurant was not in the gardening business, unlike Grubhub, which actively participates in food delivery in Los Angeles.

Regarding the intent of the parties, Grubhub argues that the Agreement signifies an independent contractor relationship, stating Mr. Lawson's independent contractor status. However, the label of the relationship is not decisive, especially in low-wage, low-skilled jobs where the terms are unilaterally set by the hirer. Mr. Lawson's acknowledgment of his independent contractor status required him to check a box to drive for Grubhub, and there is no evidence that Grubhub would have hired him otherwise. Grubhub also points to Mr. Lawson's prior contact with Plaintiff's counsel concerning a lawsuit, suggesting he did not intend to create an independent contractor relationship. The analysis of the Borello factors indicates they should not be applied mechanically but rather considered in their interrelated context.

Several secondary factors indicate an employee/employer relationship between Mr. Lawson and Grubhub, including the integration of his delivery work into Grubhub's regular business, the low-skilled nature of the work, and the absence of a distinct delivery business for which Grubhub was merely a client. However, primary factors support Mr. Lawson’s status as an independent contractor. Notably, Grubhub did not control the manner or means of his work, including his working hours and the freedom to deliver for competitors. Additionally, Grubhub only provided a mobile app and neither party intended for the work to be long-term or regular, viewing it as episodic. While Grubhub retained the right to terminate the agreement with 14 days' notice, this did not equate to control over Mr. Lawson’s work. The court concluded that the overall assessment of factors confirmed Mr. Lawson’s classification as an independent contractor, distinguishing this case from JKH Enterprises v. Department of Industrial Relations, where couriers were found to be employees due to different circumstances, including regular routes and direct employer oversight.

Drivers for JKH set their own schedules but primarily followed regular routes, allowing JKH to meet delivery demands even if a driver opted out. This indicated significant control by JKH over the drivers, contrasting with Grubhub, which incentivizes drivers through bonuses and lacks control over their work schedules. JKH had previously classified drivers as employees but shifted to independent contractor status following a penalty for inadequate workers’ compensation coverage, which the Department viewed as intentional misclassification. In contrast, Grubhub never classified its California drivers as employees. Many JKH drivers worked consistently for over two years, demonstrating dependency on them for business operations, while Grubhub's delivery services were not its primary business and had fewer regular drivers. The Department emphasized that JKH's business relied entirely on delivery drivers, unlike Grubhub, which could operate independently of them. The case referenced, Air Couriers Intern. v. Employment Development Dept., highlighted factors such as regular schedules and long-term employment that led to a ruling of employee status, which do not apply to Grubhub drivers. Ultimately, under California law, the distinction between employee and independent contractor status has significant implications for rights and benefits, suggesting a need for legislative attention in the context of the gig economy.

The Court determined that Mr. Lawson was an independent contractor while providing delivery services for Grubhub, as established through observations at trial and the application of the Borello test. Consequently, he cannot succeed on his individual Labor Code or PAGA claims, leading to a judgment in favor of Grubhub. The Court also found Mr. Lawson's trial testimony, as well as that of T.J. O'Shae, to lack credibility, primarily due to inconsistencies and the limited nature of Ms. O'Shae's experience with Grubhub. For instance, Ms. O'Shae's assertions about the time allowed for drivers to accept delivery offers were proven incorrect by Grubhub's records, which indicated a duration of two to three minutes, contrary to her claim of only 20 seconds. The Court emphasizes that all statements of fact within the opinion are intended to be considered findings of fact, regardless of their placement in the document.