Great news for gig economy businesses from an Illinois federal court: a judge recently ruled that Grubhub’s delivery drivers were not operating in “interstate commerce,” and therefore were not excluded from the company’s mandatory arbitration agreement. The March 28 ruling is one of the first decisions on this subject following January’s Supreme Court ruling casting this issue into doubt. While the fight is not over, round one goes to gig economy companies.
If you have been keeping an eye on growing trends in the gig economy, you know that around a third of workers reportedly use contract or freelance gigs as their primary source of income, and that this number is only expected to grow in 2019 and beyond. You may even be managing one of these workers as you read this. If not, odds are that you will be soon. So what are the rules in this context? And more importantly, how can you most effectively manage and lead a workforce blended with both full-time workers and freelancers?
Last week, we shared with you the news of Uber’s proposed $20 million settlement to resolve a long-running misclassification claim – the parties agreed to the deal, and they just needed the approval of a federal court judge (read the entire post here). Of course, nothing is finalized until it’s signed, and the parties to this particular claim know that all too well; after all, they thought they had a $100 million settlement in place in April 2016 before the same judge nixed the proposed deal as not being “fair, adequate, and reasonable” to the class of drivers. This week, that judge signaled there could be another fly in the ointment, and its name is Dynamex.
Lyft recently filed for an initial public offering with the hopes of raising as much as $2.1 billion. As part of its registration statement for its IPO, Lyft acknowledged the company could be negatively impacted by several potential business risks. The filing acknowledged not only increased and intense competition from competitors, but also the specter of litigation across the country as drivers contest their classification as independent contractors and the applicability of Lyft’s arbitration agreement. Within its S-1, Lyft cited lawsuits disputing the employment status of its drivers – as well as new municipal regulations – as potential risks that investors should consider when evaluating the company.
The $100 million settlement announced Monday by a transportation company to resolve a long-running misclassification claim might be the direct result of a January Supreme Court decision, and might be a troubling harbinger of things to come for many gig economy businesses. Swift Transportation paid the massive sum to a group of drivers who claimed they were improperly classified as “owner-operator” contractors when they should have been treated as employees, but only agreed to the deal after it became clear that recent legal precedent from the SCOTUS meant that they could not resolve the dispute in arbitration. What does this settlement signal for gig economy businesses in general?
When the news broke today that Uber had agreed to pay a group of drivers $20 million to settle a long-running misclassification claim, you could be forgiven for thinking that the deal sounded like a massive blow to the gig economy giant. After all, $20 million is a substantial sum – no matter how large a company is – and in most cases would be an indication that the paying party had given in to the exorbitant demands of the claimants. But this settlement is different. It resolves a claim that Uber had originally agreed to settle for $100 million – five times the amount of the final total. How did Uber get such a bargain?
Ever since Uber became part of our everyday world, the mandatory arbitration agreement it requires its independent contractor drivers to sign has been under constant scrutiny—and attack. A recent decision, however, fell in the gig economy company’s favor, presenting a good lesson for all gig economy companies.
Regular readers of this blog know about the Grubhub gig economy misclassification litigation. The quick version: Grubhub squared off with a former driver, Raef Lawson, in the nation’s first-ever gig economy misclassification trial in late 2017, leading to a victory for Grubhub in February 2018. Things took a turn for the worse in April 2018 when the California Supreme Court dropped a bombshell and changed the misclassification standard with its infamous Dynamex decision, which ushered in the notorious ABC test, and Lawson’s attorneys quickly pounced and argued that he should now be declared the victor given the new standard. Lawson filed an appeal with the 9th Circuit Court of Appeals and filed his opening brief in November 2018, and Grubhub filed its Response in January.
You can have the best independent contractor agreement in the world. You can hire the best gig economy lawyers in the country (ask us, we have some ideas) to draft the absolute crown jewel of a document for you, capturing the latest and greatest legal developments and considering every last aspect of your business. But yet it’s not going to save you from a misclassification problem if the underlying relationship isn’t compliant with your state’s contractor laws. An Alabama federal court just provided yet another lesson on this point in a case involving a delivery driver.
After the Supreme Court ruled a few weeks ago that independent contractors working “in interstate commerce” were exempt from arbitration pacts due to a broad interpretation of the Federal Arbitration Act (New Prime v. Oliveira), I wrote a blog post about how labor law commentator Ross Runkel wondered whether gig business ride-share drivers and others would be able to extend that ruling in their favor and escape typical arbitration agreements. National Law Journal’s Erin Mulvaney followed this thinking by writing an article recapping how gig economy plaintiffs will soon be test-driving the New Prime decision to see if it can work in their favor. As she says, “already in the weeks since the ruling was issued, there are signs plaintiffs lawyers will use the opinion to reinforce their arguments that drivers who signed arbitration agreements should nonetheless be allowed to sue their employers in court.”