A federal judge in California recently found that a restaurant delivery driver working for Grubhub was an independent contractor rather than an employee (and thus was not entitled to minimum wage, overtime, and expense reimbursement under California law). As a first-of-its-kind decision on the merits of the independent contractor analysis in the so-called “gig” or “sharing” economy, the decision presents a fairly comprehensive analysis of the traditional independent contractor analysis in this developing context. It’s important to recognize that there may be limits to the Grubhub case’s applicability to other new-economy companies because many of the judge’s determinations were based on the plaintiff’s lack of credibility. The decision is also likely to be appealed to the Ninth Circuit, which is typically not friendly to the gig economy.

Yet, for now, the case provides a checklist that companies might use to review their arrangements with independent contractors. Factors to consider include:

  • Processes for selecting drivers: While Grubhub conducted background checks, the court discounted this because the practice was designed to ensure compliance with the requirements for legally driving. Critically, here, no one at Grubhub had ever met the plaintiff in person prior to his lawsuit.
  • The contract: The contract was limited to a term of 60 days and clearly stated that the driver was not an employee, but rather an independent contractor allowed to provide services to other companies. The contract also noted that each time the driver drove for Grubhub was a separate engagement.
  • Equipment/Uniforms: Drivers could wear Grubhub hats and shirts, but they were not required to do so. Drivers were only required to have a vehicle and a smartphone.
  • Scheduling: Grubhub drivers were free to sign up to any “block” of time during which they would be available to make deliveries; however, they were not required to sign up for specific blocks or for any blocks at all.
  • Managing details of each task: Drivers selected their own routes and Grubhub didn’t dictate any specific delivery time or monitor delivery times.
  • Training and Control over customer service: Other than offering voluntary trainings on the subject, Grubhub had no control over how drivers interacted with customers or restaurants and training sessions were not required.
  • Discipline and performance: Even though some incentives existed for “top performers,” failure to be a top performer did not jeopardize a driver’s engagement with Grubhub, and Grubhub did not conduct performance evaluations.
  • Termination: Grubhub and the drivers had the ability to terminate their relationship for cause or with 14 days prior written notice. The court noted that the ability to terminate is not the same as the ability to control — instead, Grubhub had to follow the contract and terminate under the cause provision or provide notice.
  • Reimbursements and other benefits: The drivers were not reimbursed for expenses except for a small amount for mileage to the customer’s delivery location and they did not receive insurance or other benefits.

As the judge saw it, Grubhub did not meet the requirements of the “right to control test” that would have made the company an employer. Grubhub’s lack of control over its drivers allowed the plaintiff, in the judge’s words, to “game the app” so he could perform little to no deliveries and yet get compensated as if he had been available for entire blocks. While companies’ first instincts may be to take steps to avoid similar types of abuse by contractors, the real message that the Grubhub case provides is that it may be difficult to exercise that control without also recognizing the risk that your company’s independent contractors may be found to actually be employees.