(Bloomberg) – In a significant court decision on the status of so-called gig-economy workers, a federal judge ruled drivers for GrubHub Inc. are independent contractors and not employees.
The ruling may have far-reaching implications for other sharing economy companies, including Uber Technologies Inc., whose business models are built on pairing customers with products and services through apps and typically avoid the costs of traditional employment.
U.S. Magistrate Judge Jacqueline Scott Corley in San Francisco concluded Thursday, in a first-of-its-kind ruling, that a gig-economy driver doesn’t qualify for the the protections of employees under California law.
“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.”
The case against GrubHub was brought by Raef Lawson, who worked as a food-delivery driver for less than six months while pursuing a career as an actor and writer. Lawson claimed the company violated California labor laws by not reimbursing his expenses, paying him less than minimum wage and failing to pay overtime.
Charlotte Garden, an associate law professor at Seattle University, said Corley’s decision is a “doubly big” win for GrubHub due to California’s relatively high standard for establishing workers as independent contractors.
“If they can make it here, they can more likely make it anywhere,” Garden said. “It is also the first federal court to reach a verdict on whether workers in the gig economy are employees or not, so companies like Uber and Lyft will also be celebrating this win.”
At a hearing in October, Corley expressed concern that Lawson’s resume filed with the lawsuit may have tainted the trial because the actor lied about completing a three-year program. The specifics of the program weren’t provided.
Corley said Lawson was “dishonest” and that the resume “is really problematic to me.”
The question of whether Lawson is an employee turned on how much control GrubHub exerts over the work life of its drivers. The company, which competes with Uber in restaurant food delivery, argued that Lawson decided when, where and how frequently he performed door-to-door deliveries.
Shannon Liss-Riordan, a lawyer for Lawson, contended indicators of GrubHub’s control over drivers include that the company expects them to be available to accept assignments during shifts they sign up for and to remain in designated geographical areas.
Liss-Riordan also represents Uber drivers in high-profile misclassification lawsuits that have dragged on for years. Liss-Riordan didn’t immediately respond to phone and email messages seeking comment on Thursday’s ruling.
Matt Maloney, chief executive officer of GrubHub, said the company is pleased with the ruling, “which validates the freedom our delivery partners enjoy from deciding when, where and how frequently to perform deliveries.”
“We will continue to ensure that delivery partners can take advantage of the flexibility that they value from working with GrubHub,” he said in a statement.
Uber declined to comment on the ruling.
The case is Lawson v. GrubHub Inc., 15-cv-05128, U.S. District Court, Northern District of California (San Francisco).