This $586.56 San Francisco Lawsuit Could Destroy The Entire 'Gig Economy'

Tyler Durden's picture

When Raef Lawson filed his $586.56 lawsuit in San Francisco he probably didn't realize he could potentially end up disrupting the entire 'gig economy' that subsidizes a plethora of Silicon Valley tech giants from Uber to DoorDash, but that could very well end up being the outcome. 

As Yahoo points out today, Lawson used to be a delivery driver for GrubHub but now he finds himself at the epicenter of an ongoing legal battle over whether 1099 contractors working for firms GrubHub and Uber should really be counted at employees rather than independent contractors.

In a windowless, 15th-floor courtroom in downtown San Francisco last week, GrubHub was defending its 1099 independent contractor employment model for its delivery drivers.

 

There's no verdict yet, and there probably won't be for at least another week. This trial, Lawson vs. GrubHub, is looking to determine whether or not plaintiff Raef Lawson, an ex-GrubHub driver, was misclassified as an independent contractor while delivering food for GrubHub.

 

Lawson's lawyer, Shannon Liss-Riordan (pictured below), has spent a good chunk of time in this trial focusing on the amount of control she perceived GrubHub to have over Lawson during the time he delivered food for them. She's trying to prove that Lawson's employment met the conditions of the Borello test, which looks at circumstances like whether the work performed is part of the company’s regular business, the skill required, payment method and whether the work is done under supervision of a manager. The purpose of the test is to determine whether a worker is a 1099 contractor or a W-2 employee.

GrubHub

 

Of course, the entire business model for companies like Uber hangs in the balance as adding 1,000s of employees to their own payrolls would drastically change, if not completely destroy, their business model. 

For now, these employers bring on 1099 contractors to avoid paying taxes, overtime pay, benefits and workers' compensation.  But, if that were to change, the cost of that Uber trip would suddenly look a lot like your taxi fare from 10 years ago.

Those who work as 1099 contractors can be their own bosses, meaning they can set their own schedules, and decide when, where and how much they want to work. Being a 1099 contractor can also be a solid, lucrative side-hustle because you could theoretically work for several companies at once. As noted in this trial, Lawson also delivered food for other gig economy startups, including Postmates. For employers, bringing on 1099 contractors means they can avoid paying taxes, overtime pay, benefits and workers' compensation.

 

Although Lawson only seeks a small, estimated sum of $586.56, the result of the trial could potentially affect the employment models of companies like Uber, Lyft, Postmates, Caviar, DoorDash and many others.

Perhaps that's why it makes sense that, as Yahoo points out, Uber's undoubtedly high-paid "employment counsel team" has suddenly taken a very active interest in a tiny $500 lawsuit.

On day one, I noticed a member of Uber's employment counsel team watching closely, taking notes about the trial. That makes sense, given Uber has found itself as the defendant in similar lawsuits that have ultimately been settled before needing to go to trial.

But, who knows if we'll ever see a verdict in the Lawson vs. GrubHub trial...for some odd reason these types of cases keep get settled before a judge can rule on them.

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JohninMK's picture

Would be the best $586.56 plus costs they ever spent to settle that.

toady's picture

Yeah.... they'd need to cough up a lot more than that to buy me (or anyone with any sense) off....

Deathrips's picture

If it fucks the commmunist Zionists supremacists im all for it.

 

A californian

 

RIPS

IH8OBAMA's picture

It's usually the IRS suing companies who abuse the independent contractor designation.  The fact that it isn't the IRS suing means that Uber and others are safely in the "safe harbor" definition of using independent contractors.  The driver suing for $500 doesn't have a chance at winning.

 

El Vaquero's picture

The fact that this is an issue is yet another argument for repealing the 16th Amendment. 

Crisismode's picture

Well, now that you have the temerity to suggest we start repealing

constitutional amendmets,

We can start with the 1st through the 15th

before with get to your precious 16th,

How about that?

 

 

evoila's picture

Seems to me that if this guy can milk GrubHub for a lot more than his $556 + legal fees to settle, then somebody might as well just start a company with the plan to get sued, and then hold Uber hostage for a big chunk of money to defend the case properly.

This simple vulnerability seems to be a chink in the business model of these companies.

Gaius Petronius's picture

Just wanted you to know... You made me laugh because your idea is brilliant!  I love the thinking.  Let's turnt this into a business opportunity ..... who knew you could actually make a fortune out of breaking the law and then getting sued for it!  Gotta love it!!

 

 

 

 

Boris Alatovkrap's picture

Boris is confuse by complexity of USSA employment and taxation. EVERYONE in Russia is work for self except socialist crony. When you are work for self, best part is choose own time to wake up and when you are making holiday. Worst part is boss is total asshole.

The_Juggernaut's picture

He hired on as a contractor and decided he didn't like the deal he agreed to?  What a weasel.  He deserves nothing.

Escrava Isaura's picture

Driver Raef Lawson hasn’t realized that there’s no economy. Driver Lawson still deluded that the past will come back, but, it won’t, because we would need about 110 million barrels of crude oil a day, and we’re barely getting 80 million barrels.  

 

Bonaparte's picture

Yeah, just like those ingrate share cropperswho starved to death working for billionaire plantation owners. My grand parents were such.

Bonaparte's picture

I was thinking the same thing evoila. Let's start a company with that goal in mind and call it Money Grub Hub but keep the name off the books so as not to tip our hand.

RichardParker's picture

Nobody will be holding Uber hostage. 

Eric Holder will make the problem go away.

El Vaquero's picture

How about that would get you a bullet in the back of the head. 

stormsailor's picture

or at least through a plane intersecting the ear canals, the pit under the nose to the nape of the neck trying to hit the center of that plane.

beemasters's picture

"If it fucks the commmunist Zionists supremacists im all for it."

In the end, Customers may well be on the losing end. The only way to fuck 'em is to roll out competing apps with free/lower membership fees. Would you say that's communism?

OverTheHedge's picture

I'm not sure that  Uber customers are getting a fair deal at the moment, given that Uber uses the naivety of its workers to have them subsidize the cost of running the business. I am fairly sure that most taxi drivers pre Uber were not billionaires, so uber cutting costs even more may have made the current model unsustainable in the long term. Either fares go up, or taxi drivers and Uber drivers pull out of the market, and then fares go up. A short term unsustainable reduction in costs, followed by a major hike once the competition is dead is how most monopoly systems are founded.

fx's picture

Uber squeezes its drivers and still has to subsidize its service in order to attract customers. When you lose 1-2 billion $ year after year in order to grow your "business" I would strongly question the long-term viability of said "business".

East Indian's picture

the cost of running the business

 

What costs? An app, a team to maintain that app, a good server farm, and a few dogs to guard that farm, a couple of watchmen to feed the dogs, and a call center in Mumbai...

I still fail why this company should lose millions and millions every month.

Erek's picture

Do you really think they are "losing millions"? The top bosses are most likely putting any monies brought in into their own pockets thus causing a deficit for the business.

Bwana's picture

I have never used UBER and I don't know the fares. I have a daughter in law who uses them regularly. The actual total cost of using an auto is a lot higher than most people imagine. About ten years ago the AAA figured the cost per mile of a Ford Taurus. They came up with $1.10 per mile. This included interest on the loan, regular maintenance, parts, gasoline, depreciation, insurance and of course all wear parts like brakes and tires. Another question is how do these companies get away with the drivers not having a chauffer's license and commercial insurance? Every taxi driver has a chauffer's license and the company they drive for carries a lot higher limits than most people. 

vaporland's picture

let us know how your efforts to repeal the 1st and 2nd amendments to the US constitution work out...

Debt-Is-Not-Money's picture

We cannot repeal an amendment (16th and 17th) that does not legally exist!:

http://www.devvy.com/new_site/17th_amendment_docs_march_2010.html

detached.amusement's picture

I actually had a discussion about this recently with pops, who's well trained in the status quo of federal legalism.  I was shocked and appalled when he asserted that the states have no rights, and they actually gave them up by virtue of becoming a part of the United States - and to double down on it, the fact that Congress never ratified the revisions of the Articles of Confederation is immaterial because the new US Fedgov that was created and "ratified" by the "delegation of friends I mean states" was a new government that didnt need to consider the states input, since their "contract" was with the people directly, and wholly bypassed the individual states.

 

And this is coming from a fucking "Constitutional Scholar."  (It was funny hearing him boast about how he was trained by one of the most highly respected legal scholars in the field...)

 

Un fucking believable.....but QUITE instructive.  Basically boils down to fedgov can do whatever the fuck they want and nobody has any recourse, because that would be "illegal."

Rocbottom's picture

Who is the numb nut that down-voted this?

Erek's picture

The same guy who down-voted you.

seataka's picture

Here is an unpopular idea,

Index the original income tax law to inflation.

Withdrawn Sanction's picture

You're assuming the IRS is actually on its toes.

Erek's picture

They're usually flat on their feet when it comes to the "big players".

Iskiab's picture

I wouldn't say that, you never know what can happen in front of a judge, it's unpredictable. I imagine that's what their council, incompetently, advised.

$509 is nothing and this should have been settled and it's incompetence that let this go to trial. There's a good chance that the company thinks they don't owe anything, so pushed for trial without realizing the consequences if they lose. A loss will destroy their company and a win won't settle the issue.

I see this too often, I have pictures in my head of a bunch of coked up management begrudging $500 and and pushing trial despite the consequences.

gmrpeabody's picture

" pictures in my head of a bunch of coked up management begrudging $500 and and pushing trial despite the consequences"

+100   roflmfao

UPDATE   You owe me a new keyboard, well played Sir!

Gaius Petronius's picture

My hunch is that it's the other way around.  From what I hear, this lawyer and this guy is a crusader.  They are suing for the "principal of the thing"....these clients are usually either the worst clients orthe best clients..  Anyway, if it is the plaintiff forcing the hand, then it's gonna take alot of money to get him to walk away "from his principles".  I could be had for a few million. I'm just saying...

 

 

 

sessinpo's picture

Then they should have sued for more which they could't justify.

besnook's picture

i see a bunch of coked up lawyers sending recruiters out to find clients who want to sue their giggers for the blackmail money and an appropriate legal fee.

junction's picture

This "gig" economy is the end result of 40 years of incompetence at the state and federal government level by agencies that were supposed to protect workers from rip-off employers who violated every labor and human rights  laws in the book. You have do-nothing government civil service employees who collect pretty good salaries and then do nothing about employee complaints involving wage claims, human rights violations and misclassification of workers.  Amazon forces pregnant employees to quit, Tesla works assembly workers until they are disabled and every one of these start-ups feels they are exempt from the law.  The MSM reporters ignore everything that is going on, as if their silence will protect their newsroom jobs from vanishing. 

buttmint's picture

..all "real bennies" got disappeared when all USA set down the path of de-industrialization.

Adios jobs, income, benefits, and of course....taxes. Boating accidents became the new normal!

Froman's picture

You are 100% correct IH8OBAMA.  My wife once tried a case like the one described in appleate tax court (Marlar, Inc. v. United States).  The "safe harbor" provision is exactly why many businesses follow this model. Here are the particulars of the case (which the government lost);

Where Marlar operated an adult entertainment establishment, known as “Club Extasy,” offering nude and seminude dancing to the public.   Upon entering the club, customers had to pay a cover charge and buy a soft drink.   Without further expense, they could then mingle with the dancers and watch them perform on the main stage.   Alternatively, they could pay extra for more, one might say, personalized attention.   Any customer could offer a “ladies' drink” (a $10, 12-ounce soft drink) to the dancer of his choice.   If the dancer accepted the drink, she would sit and talk with the customer in return.   During this conversation, she would usually take the opportunity to market one of the performances in her repertoire, such as a “table dance” ($5), a “couch dance” ($12), or a “private stage dance” (prices variable).  

Marlar treated its dancers as “lessees” rather than employees or independent contractors.   Each dancer signed a “Dancer Performance Lease,” under which Marlar, as “landlord,” provided stages and dance facilities.   In exchange, the dancer, as “tenant,” paid a “rental fee.” 

The dancers received no payment from Marlar or the customers for main-stage dancing, aside from the occasional tip.   They earned their money from the one-on-one performances.   Their compensation came in three forms.   First, customers usually paid cash for the personal performances.   The dancers kept 100% of the amounts received.   Second, customers sometimes paid the dancers with scrip, known as “Extasy Bucks,” which the customers purchased from the club with their credit cards.   The dancers redeemed the scrip for cash from the club, which retained ten percent of the face value as a “service charge.”   Third, the dancers received from the club a $10 credit (treated as a rent abatement) for each of the first four ladies' drinks purchased for them on a given night.  The dancers do not report their earnings to Marlar, and Marlar claims not to know their relative incomes.

Marlar has never paid employment taxes on the dancers' remuneration or filed employment tax returns.   In 1994, the IRS audited Marlar, determined that the dancers were employees, and assessed employment taxes totalling $282,082.11 (plus interest and penalties) for tax years 1990 and 1991.   Marlar made a partial payment of this assessment and then brought this action for a refund.  The United States filed a counterclaim for the balance of the assessment.

Marlar contended that:  (1) the dancers were its lessees, rather than its employees;  and (2) even if the dancers were its employees, it was nonetheless entitled to the protections of § 530 of the Revenue Act of 1978, Pub.L. No. 95-600, 92 Stat. 2763, 2885-86, § 530.  This section provides a safe-harbor which shields a taxpayer of employment tax liability if, inter alia, (a) the taxpayer's treatment of the workers as non-employees was in reasonable reliance on industry practice, and (b) the taxpayer filed all requisite federal tax returns consistent with the treatment of the workers as non-employees.

 

 

Matteo S.'s picture

I am afraid this is but the price of nostalgic dream. This is no longer a time of genuine anti-trust policy.

When was the last time US courts dismantled monopolies ?
Both US government and courts have been protecting private monopolies for decades.

The US Supreme Court is so corrupt that it even ruled in 2010 that corporations are persons that have the same freedom of speech as actual people. Hence sanctuarizing the right of corporations to spend millions in order to buy candidates and election results.

It is highly unprobable that there will not be an appeal court or a supreme court that will not protect big business interests.

Arnold's picture

When they killed old Ma Bell.

Ma Bell raised me and they killed her.

GunnerySgtHartman's picture

Indeed.  The biggest monopoly outside of the Fed is the Wall Street banks, and the government is in bed with them.

GunnerySgtHartman's picture

I'd love to see Zuckerfart have to cough up hundreds of millions in back wages.

SweetDougisaTwat's picture

You have no idea how wrong you are.  You're considering the principle of the matter.  Wrong.  There is a hell of lot more at stake.  You (and everyone who upvoted you) need to get your head out of your Millenial-thinking ass.

pitz's picture

Any rational company would just pay this guy off instead of letting something like this go to trial.  But it sounds like some of these companies, largely unprofitable, are looking for a scapegoat.  Next quarter when their numbers look increasingly bad, they'll point to losing this lawsuit as "the" cause of the problem, rather than epic mismanagement.

aliens is here's picture

I hope he is not going to go for a settlement.

Stan Smith's picture

So if Grub Hub offers a 1000 bucks plus legal fees does this guy settle?