The sharing economy has provided a number of benefits to society. It has enabled workers with low skills or disabilities to find work opportunities that previously were unavailable to them. It has created new and more flexible ways to earn a living, providing individuals with more time to pursue their passions. It had made services available to consumers who were underserved before the rise of the platform economy.
But all is not sunshine for the sharing economy, as a policy battle has arisen over the proper classification of these workers.
Many progressives believe that sharing economy workers should be classified as employees, not independent contractors. But doing so would undercut why so many individuals find sharing economy work appealing.
Workers sign up for these flexible work arrangements because they get to choose how much and when they work and do not have a boss leaning over their shoulder telling them how to perform their work. As my colleague Iain Murray has noted, classifying sharing economy workers as employees will “kill off the jobs that businesses want to offer and that people want to take” because of the added costs and liabilities of traditional employment.
There is little evidence to indicate that sharing economy companies exercise the kind of control over employees normally found in a traditional employer-employee relationship.
However, it difficult to create a bright-line test that neatly separates an employee from an independent contractor. This has led to a slew of lawsuits across the country over whether sharing economy workers should remain independent contractors or assume the classification of employee. Nearly all, if not all, of these lawsuits have concluded in a settlement and failed to answer that question.
That changed this week. The United States District Court for the Northern District of California ruled that Grubhub, an online food ordering company, properly classified its food delivery drivers as independent contractors under California law.
In the lawsuit, Raef Lawson, a Grubhub delivery driver in California, argued he was improperly classified as an independent contractor and should have been treated as an employee. As such, he contended that Grubhub violated the state’s wage and hour laws, like minimum wage and overtime.
The Court disagreed with Lawson and ruled that Grubhub had properly classified him as an independent contractor. In short, the court ruled:
While some factors weigh in favor of an employment relationship, Grubhub’s lack of all necessary control over Mr. Lawson’s work, including how he performed deliveries and even whether or for how long, along with other factors persuade the Court that the contractor classification was appropriate for Mr. Lawson.
In cases concerning worker classification, the basic question is whether the putative employer possesses the right to control how work is performed. In California, the right to control details of work is the most important factor in worker classification decisions.
In Grubhub’s case, and as with most sharing economy companies, it exercised very little control over the details of Lawson’s work. As the Court decision stated, Grubhub did not “control how he made the deliveries” or “the condition of the mode of transportation.” The company did not control how Lawson dressed, how he interacted with customers, or whether anyone could accompany him on deliveries.
This is an important decision in the battle over worker classification. It shows that when looking at the facts of these kinds of work relationships, an employer-employee relationship does not exist. Hopefully, this decision will pave the way toward allowing flexible work arrangements to flourish.