Saturday, February 17, 2018

Why Lawson v. Grubhub, Inc. Did Not Change the Independent Contractor World (and No One Case Could)

In a recent case, Grubhub v. Lawson, Case No.15-cv-05128-JSC, 2/08/2018 (N. D. Cal.), a GrubHub delivery driver was found to be an independent contractor of GrubHub, and not its employee. Predictably, almost immediately after the decision issued, several news stories emerged suggesting that the outcome could broadly impact the “Gig” economy. see, e.g., here, here, here, and here.  Anyone thinking such a thing (whatever the facts of the current GrubHub case) has little grasp of the law of agency. An individual is covered as an employee under an employment statute – including workers’ compensation statutes – if he or she fits the statutory employee definition. The analysis will always be fact-dependent and complicated.

Although the historical story is (or should be) well-known, it bears repeating. (I cover it all in my workers' compensation textbook). In the mid-twentieth century, many statutes defined “employee” very broadly because their aim was to presumptively cover workers to achieve broad social objectives. These broad definitions, which sometimes subsumed entirely the independent contractor legal category, differed from those that had been decided upon – especially in torts cases – in roughly the late 19th century. The 19th century cases were meant to protect employer/principals from liability occasioned by the tortious conduct of their employee/agents. They tended to presumptively not cover individuals as employees. In reaction to judicial expansion of the employee-definition under labor and employment laws, legislatures began to insist upon a return to the earlier, common law distinction between “employees” and independent contractors. That earlier distinction is captured in a generally-accepted, common law, multifactor formulation set forth under the Restatement Second of Agency, Section 220(2). Before I set out the factors, I’d like to say a few words about the slightly-different-than-early common law policy embedded in them.

It is fair to say that the history of employment legislation is simultaneously a history of displeasure with the legislation. A quick search in the Hein Online database of law review articles yielded a law review article from 1941 expressing dissatisfaction with the then-extant California independent contractor standard in workers’ compensation cases. Comment, Agency, Independent Contractors in California, 30 Cal. L. Rev. 57. (The article taught me, among other things, that the California presumption that those engaging in work for another are “employees” was the law of the state as early as 1926. Hillen v. Industrial Acc. Comm., 199 Cal. 577).  

The point is that the law has always had to deal with two fundamental tensions in employment law. First, a profit-maximizing employer has both the economic incentive and the legal expertise to characterize almost any employee as an independent contractor. A second tension is that such stratagems frequently cannot be immediately dissected. Many workplaces are simply too complex to determine, without analysis, who is legitimately an independent contractor, and who is not. The Section 220 analysis (below), which tends to be the default analysis when statutes have not clearly defined employment status, strikes a balance in distinguishing between “employees” and independent contractors. The analysis first weighs which party—the employer or the worker—has control over the details of the work in a workplace. If a contractor is truly a contractor, he or she should probably have complete control of the details of work. But for decades it has been understood that control of details of the work often does not resolve the question.  Without trying to catalogue the other factors narratively, I will set them out below and invite the reader to reflect on how each of them causes a factfinder to pause and ask the question, “Is this individual really an independent contractor?”:

  • 220 Definition of Servant

    (1) A servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other's control or right to control.

    (2) In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered:

        (a) the extent of control which, by the agreement, the master may exercise over the details of the work;

        (b) whether or not the one employed is engaged in a distinct occupation or business;

        (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;

        (d) the skill required in the particular occupation;

        (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;

        (f) the length of time for which the person is employed;

        (g) the method of payment, whether by the time or by the job;

        (h) whether or not the work is a part of the regular business of the employer;

        (i) whether or not the parties believe they are creating the relation of master and servant; and

        (j) whether the principal is or is not in business.

I would argue that factors 2(b), 2(c), 2(d), 2(f), 2(h), and 2(i) of the test will very often argue in favor of individuals being found to be employees rather than independent contractors. When six of ten factors are very likely to be arguable, one can see why many close cases will be contested and extremely fact-sensitive. Thus, for any given independent contractor case to govern other cases, very close (practically impossible) parallels of fact and law would be necessary.

Of course, some jurisdictions may use alternative rules to determine who is an employee and who is not. Each workers’ compensation jurisdiction, for example, is at liberty to create its own employee definition. As I have noted, California created an employment law standard over the years presuming that those engaging in work for another is an employee as a matter of law. It is sometimes claimed that the standard is especially favorable to employees. I disagree. Rebutting such a presumption may mean little more than proffering evidence initially that would ultimately have been produced in any event. Moreover, the presumption is counterbalanced by a watering down of the 220 test: the control analysis (factor (a)) is considered “primary,” while all other factors are relegated to secondary status. Under federal law, it will probably be easier to establish independent contractor status under the National Labor Relations Act than under ERISA -- for reasons I suspect are obvious. Thus, standards will be different under federal law and under state law, between employment law statutory regimes, and even when contrasting tort law with employment law. A grand unified theory does not at present exist, and I doubt it ever will.

Ultimately, independent contractor cases will always be subtle. But the purpose of subjecting the independent contractor distinction to analysis is not only to shield employers from inappropriate liability, it is also to prevent the inappropriate misclassification of employees. If the test is to be reworked, as California is apparently doing right now, we should be very clear about whether we intend to be serious about operationalizing the relevant statute.  

Michael C. Duff

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