Employee status in the age of the gig economy

The most recent installment in the ongoing effort to reconcile what has become known as the "gig economy" with traditional notions of employee versus independent contractor status in California comes from the U.S. District Court for the Southern District of California. And a more significant decision is due from the California Supreme Court in the very near future.

In Lawson v. Grubhub, Inc., 15-CV-05128 JSC (Feb. 8, 2018), the federal court in San Diego examined whether the Grubhub delivery drivers were employees or independent contractors. Following significant procedural narrowing, the complaint was reduced to a single plaintiff, Private Attorneys General Act claim brought by Lawson. A bench trial was scheduled in phases with the first phase set to determine whether Lawson could be an aggrieved employee with standing to bring the PAGA claim. The court conducted a full application of S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989), evaluating both the primary control factor and the secondary factors. It concluded that not all factors favored either employee or independent contractor status, but in viewing all the facts, Lawson was an independent contractor. He had figured out ways to "game" the Grubhub app and system to induce it to pay him even for times when he made no deliveries at all. To reach this conclusion the court surveyed a number of other courier/delivery driver cases in both California courts and the 9th Circuit.

Similarly, Dynamex Operations West v. Superior Court (S222732) was also argued in early February. The case examined whether in a class action context (a) the appropriate employee test is the so-called economic realities test articulated in Borello, (b) the more stringent test the court articulated in Martinez v. Combs, 49 Cal. 4th 35 (2010), or (c) judging from bench comment during argument, perhaps something different.

Why would so basic a question be so hard to answer? Those advising businesses can empathize because one can easily identify when a worker is definitively an employee but identifying a relationship that is definitively an independent contractor relationship is far more challenging, particularly in the gig economy.

Historically, both nationwide and in California, the relationship between a worker or service provider and the person or business receiving and paying for services was contractual. The right to contract was a portion of the liberty interest that could not be usurped without due process. A little more than a century ago that began to change. In 1911, The U.S. Supreme Court held, "Liberty implies the absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interests of the community." Chicago, Burlington & Quincy R. Co. v. McGuire, 219 U.S. 549, 565.

That was followed by West Coast Hotel Co. v. Parrish, 300 U.S. 379, 391-94 (1937), a case upholding a Washington statute imposing a minimum wage for women. In that case, the U.S. Supreme Court articulated a premise for state intervention notwithstanding the parties' contract noting, "that both parties are of full age and competent to contract does not necessarily deprive the State of the power to interfere where the parties do not stand upon an equality, or where the public health demands that one party to the contract shall be protected against himself." "The State still retains an interest in his welfare, however reckless he may be. The whole is no greater than the sum of all the parts, and when the individual health, safety and welfare are sacrificed or neglected, the State must suffer." Id. at 393-94. As the 1930s were a progressive time, a variety of laws that protected workers including the federal Fair Labor Standards Act and California's Labor Code provisions were enacted.

Among the more intriguing procedural aspects of a similar case, Borello, is that it did not get to the California Supreme Court by either party filing a request for review, but rather the court itself pulled the Court of Appeal decision up for review. After reviewing various formulations, the state high court settled on a form of "economic realities" test that the U.S. Supreme Court began using in the late 1940s as an extrapolation from the FLSA. That Borello does not yield a bright-line test was an understatement before anyone anywhere ever heard of a gig economy.

There was a larger problem with the Borello test. The U.S. Supreme Court in Nationwide Mutual Ins. v. Darden, 503 U.S. 318 (1992), expressly repudiated the economic realities test as a means to determine employee status noting its earlier decisions, the ones the California Supreme Court relied on in Borello were analytically wrong. Instead, the U.S. high court adopted a common law definition more akin to traditional master and servant agency test. Nonetheless, California continued to apply Borello. The confusion does not end there.

In 2010, the California Supreme Court decided a case defining "employer." The court defined an "employer" as one who, directly or indirectly, or through an agent or any other person, engages, suffers, or permits any person to work or exercises control over the wages, hours, or working conditions of any person as outlined by the Industrial Welfare Commission's Wage Order 14-2001. Martinez.

This brings us back to Dynamex and what the California Supreme Court will do. All that can be said for certain is that the gig economy workforce bears very little resemblance to the cucumber farmers of Borello and whether those who chose to participate flexibly in an app-driven world can be fairly debated.