Lawson v. Grubhub, Inc.

• Decision Date: 20 September 2021
• Docket Number: No. 18-15386,18-15386
• Citation: Lawson v. Grubhub, Inc., 13 F.4th 908 (9th Cir. 2021)
• Parties: Raef LAWSON, individually and on behalf of all other similarly situated individuals, and in his capacity as Private Attorney General Representative, Plaintiff-Appellant, v. GRUBHUB, INC. ; Grubhub Holdings, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

13 F.4th 908

Raef LAWSON, individually and on behalf of all other similarly situated individuals, and in his capacity as Private Attorney General Representative, Plaintiff-Appellant,

v.GRUBHUB, INC. ; Grubhub Holdings, Inc., Defendants-Appellees.

No. 18-15386

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 2021 Seattle, Washington

Filed September 20, 2021

Shannon Liss-Riordan (argued) and Thomas Fowler, Lichten & Liss Riordan P.C., Boston, Massachusetts, for Plaintiff-Appellant.

Theane Evangelis (argued), Theodore J. Boutrous Jr., Dhananjay S. Manthripragada, Brandon J. Stoker, and Samuel Eckman, Gibson Dunn & Crutcher LLP, Los Angeles, California; Michele L. Maryott, Gibson Dunn & Crutcher LLP, Irvine, California; for Defendants-Appellees.

Adam G. Unikowsky, Jenner & Block LLP, Washington, D.C.; Steven P. Lehotsky and Janet Galeria, U.S. Chamber Litigation Center, Washington, D.C.; for Amicus Curiae Chamber of Commerce of the United States of America.

Bradley A. Benbrook and Stephen M. Duvernay, Benbrook Law Group PC, Sacramento, California; Luke A. Wake, NFIB Small Business Legal Center, Sacramento, California; Fred J. Hiestand, General Counsel, Civil Justice Association of California, Sacramento, California; for Amici Curiae National Federal of Independent Business Small Business Legal Center and Civil Justice Association of California.

Before: William A. Fletcher, Paul J. Watford, and Daniel P. Collins, Circuit Judges.

W. FLETCHER, Circuit Judge:

For four months in late 2015 and early 2016, Raef Lawson worked for Grubhub, Inc. as a food delivery driver in the Los Angeles area. Grubhub classified Lawson as an independent contractor rather than as an employee. Lawson later sued Grubhub, arguing that he had been misclassified. Contending that he had been an employee, he alleged causes of action under the California Labor Code for failing to pay minimum wage and overtime, and failing to reimburse expenses. He sought to represent a class of similarly situated delivery drivers in California, and sought penalties under California's Private Attorneys General Act ("PAGA").

After denying class certification, the district court bifurcated the trial into two parts. The first part addressed whether Lawson was misclassified as an independent contractor. The second part would have addressed whether Grubhub owed PAGA penalties due to misclassification of its drivers in California. After a bench trial on the first part, the district court held that Lawson was properly classified as an independent contractor under S.G. Borello & Sons, Inc. v. Department of Industrial Relations , 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d 399 (1989). Because of its holding on the first part, the court did not reach the PAGA penalty issue.

Lawson appealed the denial of class certification and the holding that he was an independent contractor. We stayed his appeal while California law underwent significant changes with respect to the independent contractor/employee classification issue.

We have jurisdiction under 28 U.S.C. § 1291. We affirm the denial of class certification, vacate the judgment for Grubhub on Lawson's minimum wage, overtime, and expense reimbursement claims, and remand for further proceedings.

I. Factual Background

We begin with a brief summary of the facts found by the district court. Grubhub, Inc. is an internet food ordering service that allows customers to order from local restaurants. In 2016, Grubhub operated in 250 markets in California and offered delivery services in five of those markets. Grubhub had 4,000 delivery drivers in the state. It classified all of them as independent contractors.

After a customer ordered food through its online platform, Grubhub transmitted the order to the restaurant. Although customers could pick up their own orders, the food was typically delivered either by a restaurant delivery person or by a Grubhub driver. In the five California markets where Grubhub offered delivery services, the majority of customers had their orders delivered by the restaurants. Of the remainder, Grubhub's drivers delivered most of the orders.

Grubhub drivers selected their shifts, or "blocks," on a weekly basis. Blocks lasted between two and five hours and were scheduled around mealtimes. A driver was required to sign up for a full block. When drivers "toggle[d] available" during a scheduled block, the Grubhub app presented them delivery opportunities that they could choose to accept. Grubhub guaranteed a "true up" hourly pay for a given block if a driver accepted a certain high percentage of delivery opportunities offered during that block.

Plaintiff Raef Lawson is an aspiring actor, writer, and director in Los Angeles. In August 2015, Lawson signed up to make food deliveries through Grubhub. His contract did not restrict his ability to work for others or require him to be available for a specific amount of time. Lawson signed up for Grubhub blocks on 69 days between October 25, 2015, and February 14, 2016, and he made deliveries on 59 of those days. He was compensated for blocks totaling 35 hours in November, 105 in December, 60 in January, and 43 in the first two weeks of February. Grubhub did not reimburse Lawson for expenses incurred for fuel or for his cell phone.

Lawson sometimes "gamed" the Grubhub app. For example, on some days, he toggled himself available well after the start of his scheduled block. He also sometimes toggled himself available and then turned his cellphone on airplane mode to render it "out of network" so that he would not be scheduled additional deliveries. On other occasions, he accepted a delivery and then contacted the driver hotline to ask for it to be reassigned. During trial, Lawson claimed that he "d[idn't] really recall" having engaged in these practices.

On February 15, 2016, Grubhub terminated its agreement with Lawson because he had not performed delivery services during a high proportion of the delivery blocks for which he had signed up.

II. Procedural and Legal Background

In September 2015, Andrew Tan, a Grubhub driver in San Francisco, brought a putative class action against Grubhub in state court under the California Labor Code, as well as a representative action under PAGA. See Cal. Lab. Code § 2689 et seq. Grubhub removed to federal court under the Class Action Fairness Act. See 28 U.S.C. § 1332(d)(2). The parties consented to magistrate judge jurisdiction, and Lawson joined as a plaintiff. Lawson alleged that Grubhub failed to pay minimum wage in violation of Labor Code §§ 1194, 1197, failed to pay a time-and-a-half premium for hours worked in excess of forty hours per week or eight hours per day in violation of Labor Code §§ 1194, 1198, 510, and 554, and failed to reimburse for necessary business expenses in violation of Labor Code § 2802.

On a motion by Grubhub, the court denied class certification. It observed that only two of Grubhub's thousands of delivery workers in California—Lawson and one other—had opted out of the arbitration and class action waiver. It held that Lawson did not satisfy the Rule 23(a) requirements because he was atypical and not an adequate representative—that is, he was in a "unique position" and "would be unable to credibly make several procedural unconscionability arguments." Further, commonality was not present because the proceedings would not be able to generate common answers. After the class action ruling by the court, Tan dropped out of the suit, leaving Lawson as the sole plaintiff.

The parties stipulated to bifurcate the trial by focusing first on whether Lawson was misclassified, and second on whether Grubhub owes PAGA penalties for having misclassified its California drivers. The court held a bench trial on the classification issue in September 2017.

On February 8, 2018, the district court held that Lawson was properly classified as an independent contractor and granted judgment to Grubhub on all claims. See Lawson v. Grubhub, Inc. , 302 F. Supp. 3d 1071 (N.D. Cal. 2018). The court applied the multi-factor test set out by the California Supreme Court in Borello . The court noted that some of the secondary Borello factors, including whether Lawson's work was "part of Grubhub's regular business," "favor[ed] an employment relationship." But the primary Borello factor—the hiring entity's "right to control" the work—"weigh[ed] strongly" in favor of independent contractor status because Grubhub did not control the manner and means by which Lawson performed his food deliveries. Because Lawson was an independent contractor, he was not an "aggrieved employee" and could not pursue his PAGA claims. Lawson timely appealed.

Three months later, the California Supreme Court adopted the so-called ABC test for classification of workers raising claims rooted in California wage orders, such as minimum wage and overtime claims. See Dynamex Operations W., Inc. v. Superior Court , 4 Cal.5th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1, 33–40 (2018). Unlike the Borello test, the ABC test puts the burden on the hiring entity to show that its worker is not an employee. The hiring entity must establish all three of the following: (A) that the worker is free from the control and direction of the hiring entity in performance of the work; (B) that the worker performs work that is outside the usual course of the hiring entity's business; and (C) that the worker is customarily engaged in an independently established business of the same nature as the work performed. Id. , 232 Cal.Rptr.3d 1, 416 P.3d at 35.

In September 2019, a panel of this court certified to the California Supreme Court the question whether Dynamex applies retroactively. Vazquez v. Jan-Pro Franchising Int'l, Inc. , 939 F.3d 1045, 1049 (9th Cir. 2019). We stayed this appeal pending receipt of the answer.

That same month, the California legislature passed Assembly Bill No. 5 ("AB 5"), codifying and slightly modifying the ABC test. See Cal. Lab. Code § 2775 et seq.¹ First, AB 5 codified the ABC...