Independent Contractor Misclassification and Compliance News: March, 2018

By MBO Partners | March 15, 2018

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As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

1. Court Finds Grubhub Driver Was an Independent Contractor

A much-awaited Grubhub trial decision came out in February. Raef Lawson, a former Grubhub delivery driver alleged that he was misclassified as an independent contractor, that the company treated him like an employee, and that under California law Grubhub owed him overtime pay and reimbursement expenses.

The judge, however, found that Lawson was an independent contractor. The judge said that 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.”

The Court said that the principle test of an employment relationship is whether the company has the right to control the manner and means of accomplishing the desired result and that Grubhub exercised little control over the details of the work. Grubhub did not control how Lawson made deliveries, did not control his mode of transportation, never inspected his vehicle, did not control his appearance, and did not require any training or orientation, or when or how long Lawson worked.

While this case was highly publicized, its impact may not be as substantial as some might expect. Classification cases usually turn on the facts and circumstances in the particular case. In the Grubhub decision, the judge distinguished this case from others by pointing out differences in facts. This case is a win for the gig economy, but others should not rely on it too heavily.

2. California Supreme Court Considers the Standard for Independent Contractors

In February, the California Supreme Court heard oral arguments in a case that could have a far-reaching impact on the gig economy and the classification of workers as employees or independent contractors. The Court is hearing a case, Dynamex Operations v. Superior Court, in which the heart of the issue is whether the standard for determining independent contractors in California will continue to be the factors in the S.G. Borello & Sons, Inc. v. Department of Industrial Relations (“Borello”).

Since 1999, the factors set forth in Borello have been the critical factors in determining whether a worker is an employee or independent contractor in California. This multi-factor test takes the unique facts of each situation into account and is more likely to rule in favor of an independent contracting relationship. This year, the Court has an opportunity to revise this test and could make it easier or more difficult for workers to be classified as independent contractors.

The size of California’s economy makes this decision important for the gig economy and for all businesses who use independent contractors. California Supreme Court’s decision could have a significant impact—either benefiting the gig economy or stifling it—with its decision.

3. Court Refuses to Enforce Arbitration Provision

The Fourth Circuit Court of Appeals refused to enforce a provision in an agreement requiring binding arbitration in part because the employer seeking to enforce the arbitration clause had misused the judicial process.

This case dates back to 2013 when a nightclub dancer brought a putative class action lawsuit against Crazy Horse, the club that she performed at, alleging that the club had misclassified her and others as independent contractors. Initially, employment agreements at Crazy Horse didn’t contain an arbitration clause or class action waiver, but as the case proceeded Crazy House began to require their performers to sign employment agreements that did include an arbitration clause and class wavier.

Some performers who signed the new agreements became plaintiffs in the case, but Crazy Horse did not move to compel arbitration for those performers. In 2015, the court ruled that the club’s performers were indeed employees and not independent contractors, but it wasn’t until 2016 that Crazy Horse moved to compel arbitration. The trial court denied the motion saying that Crazy Horse’s employment agreements misled performers and on appeal, the Fourth Circuit affirmed the decision.

The Fourth Circuit called Crazy Horse’s conduct, “disdainful of orderly judicial process.” Because they failed to inform the district court of their intention to compel arbitration early on in litigation, the court didn’t want to create a perverse incentive for future defendants to wait as long as possible to compel arbitration.

While the court refused to enforce this arbitration provision in this particular case, arbitration agreements continue to be the best defense against frivolous misclassification claims and class action lawsuits.

For more information, check out our resources page on misclassification and compliance, or contractor engagement best practices. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.

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