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.



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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Nick13_ro's picture

So what's your theory ? That if he gave you a regular contract he'd simply forget that he'll have to pay FICA as well later and therefore you get a bigger pay ? So you assume he's got Alzheimer's ? Is that it ? Or you just assume since the law says he must pay FICA that means he must absorb the cost too ?

If he were forced to transfer you now on a regular contract, anything preventing him from cutting your pay by the exact amount of the FICA he'll need to give to the gov ? No ? Then why exactly do you assume he WONT do just that ?

A workers wage is the cash the worker actually receives+ any taxes associated with that pay. Nobody in his right mind will negociate a wage with you and just take the view that whatever taxes the government imposes associated with that wage are just gonna come out of his profit margin- they're gonna come out  of your paycheck. Same with the corporate income tax- may be called an income tax but its treated as a sales tax and passed on or deducted from wages. Regardless which way the law states companies must treat that supposed income tax as a regular cost and only consider the net benefit to the shareholder. Words like "income" tax or employer's share of the tax etc are just words- they mean nothing.

JBilyj's picture

Dude doesnt want to pay taxes, and is trying to get away with it. I hate taxes, but cmon until EVERYONE doesnt have to pay, fucking pay them!

(Or end up like Wesley Snipes)

Drop-Hammer's picture

Picture Dr. Evil, "$586 DOLLARS!!!!! (and .86 cents).

Dickweed Wang's picture

Why isn't the IRS cracking down on those companies in order to generate more payroll taxes??  They go after everyone else . . . 

Miss Expectations's picture

The IRS does go after them.  The penalties are HUGE.

roddy6667's picture

Fedex, with all its years of experience and billions of dollars to pay the best corporate law firms ended up in court over 1099 vs. W-2 and lost. They had misclassified a lot of drivers as independent contractors to save money. Fedex had to pay $319 million in fines and back wages.


hanekhw's picture

That was the reason the Clinton Global Initiative was formed. They told the IRS what to do and how to do it and when to do it and when not to do it.

shovelhead's picture

This is an outrage. People can't be trusted to pick the terms of their own employment. They need a plethora of govt. labor agencies to tell them what the conditions of employment must be.

Treating people as thinking adults needs to be discouraged at every turn. They need guidance.

Crawdaddy's picture

Agreed. Children need mothers. And now that people need never mature, everyone is a perpetual child in need of Momma Govt. Freedom of association is so 1880's.

Pisses me off we've come to this.

Pernicious Gold Phallusy's picture

Gov would also do us a great favor by taking our private pensions away from stupid us and investing the money more wisely in Social Security.

HenryHall's picture

The issue is not so much the workers.

The issue is the employers - they have been avoiding paying employer's contribution to social security tax and employer's contribution to workman's compensation for on-the-job injuries by classifying workers as 1099 contractors. If the employers would just pay these taxes then government would be willing to reclassify the workers to please the employers. It's all about money and lawyers spending a lot of time and energy finding ways to avoid paying taxes.

It's different if you do business in Russia. There if you find illegal ways to not pay your taxes then you are headed for big trouble. And it makes no difference in Russia if you find perfectly legal and above-board ways to avoid paying taxes - it is still big trouble for you if you run a business for years and don't pay your taxes in Russia.


koan's picture

Lets hope it does, this "gig" shit is a scam.

It never fails to make me chuckle that corps make every effort they can to bring back some form of slavery.

Reichstag Fire Dept.'s picture

The government wants as many employees on payroll as possible to collect higher taxes.

Contracting your labour services gives you too many tax breaks.

THIS strikes at the core of Capitalism and Libertarianism...restricting your ability to enter into contracts and negotiate terms of service.

THIS is the difference between Freedom and Slavery.

Where the fuck does the government think new contractors come from? ...oh, right, they hand those opportunities out in DC along with a get out of jail free card.

Nevertheless, cancel "Gig Economy" and watch the huddled masses of Milennials start screaming for US$20.oo basic living wage! Why kill any (every?) opportunity for a productive, hard working young person to get ahead?

Bopper09's picture

They should have just paid him $588 to settle out of court.

luckylogger's picture

Probably closer to 10k!!!!!!!!!

TheAnswerIs42's picture

If you can command more than $60K/yr for a salaried position, then you can start your own S Corp and charge $100K/yr rate for a "gig".

That's moving from $30/hr to $50/hr, but the $20/hr difference will go to overhead: such as bookkeeping, your own 401K, medical insurance, unemployment, etc.

That's still less than they were paying for all those "incidentals" when you were getting $30/hr.

It all depends on supply and demand, if you're good at what you do, then the ceiling is much, much higher.

The big difference is that you are your own worst boss and you have to learn to deal with it.

Good luck out there.



shovelhead's picture

The worst thing working for yourself is when you find out your boss is still an asshole and the employees have you by the balls because as bad as they are, you can still get worse and have to waste time and money training them to find that out.

Or you could get lucky. Roll them dice if you got the nerve for it.

Silver Savior's picture

Who in the hell makes over $20 an hour?

luckylogger's picture

Best part is the tax system is set up for self-employed.....

Everything you touch is a tax deduction.

You could make 100k and pay no tax if you do it right and use all good new stuff.

Crawdaddy's picture

Please, pretty please, send me your tax attorney's contact info. I'm being assraped at an alarming rate if what you say is true.

Pernicious Gold Phallusy's picture

You absolutely do need to get another attorney. I feel badly about it, but most posters here need to remain relatively anonymous when discussing bidness.

TheAnswerIs42's picture

It's not like you don't pay tax, it's how much you can defer and park and invest.


any_mouse's picture

The IRS is setup to gouge the W2 wage slaves.

Wealthy people do not get W2's.

Capital Gains and (Losses)
Investment Expense Deductions

Three off the top my head.

Wage slave can't deduct commuting. Independent contractor can.

Rich fly to an island for a conference and deduct the expenses.

I did the Independent Contractor deal for several years. Way better deal than W2. Under an umbrella corporation that followed the IRS rules to make it kosher.

WallHoo's picture

Finally someone who knows their staff...

rockstone's picture

The best years of my life have come with 1099's. The most boring and stifled....W-2's.

Anteater's picture

It doesn't work that way. The proof is doctors. They all work for HMOs.

Lawyers and architects would all die to get into an established agency.

You'll have a boom year or two, then it starts to fade, and nobody would

dream of hiring you again, after you went S. One of the saddest funniest

moments in my life was interviewing by an engineer S who needed a kid

who could do the newfangled CAD computer bit. Tiny, tiny 'independent'

office, his wife in bobby socks with a typewriter in one room, him in the

other room, a blue haze of cigarette smoke, leaning on an empty board.

He's trying to get me excited about working on-call, when the phone rings.

He waits, cigarette pulsing on his lips, eyes tearing from the smoke, then

"Honey, it that call for me?" I just thanked him and wished him good luck.

TheAnswerIs42's picture

While I think you are right about the majority, there are some of us who thrive on independence.

I've had an S Corp since 1997, always had plenty of work and I'm still making 6 figures.

I enjoy it and do not even want to think about retiring.

Low overhead and not being too greedy can go a very long ways...


homiegot's picture

Fucking hope so.

Bemused Observer's picture

Solve the problem by eliminating the outdated 40-hour workweek model. It shouldn't matter HOW many hours you work for someone on payroll...Any deductions or credits earned or paid should be pro-rated to whatever time you put in. There should be no artificial 'boundry' of 40 hours, or distinctions between full and part-time. 

Then, you eliminate any benefit to cutting employees hours, and the employers can go back to worrying about how many folks they NEED to get the job done, because there wouldn't be any benefit to be gained by shorting your workforce or fiddling with shifts and hours unnecessarily.

The hourly wage and the 40 hour workweek are two archaic remnants of the 20th century. Just like the rotary phone, the 'muscle car', the citizen able to wipe his own ass without assistance, these are things of the past.

It is so laughable to me that people keep destroying the value of labor. What will they do when the price is so low that no one wants to bother, and an entire generation grows up in a world where only idiots worked for wages, and where just about ANYTHING, including crime, paid much more?

shovelhead's picture

Fine. We just cut your hours to 29 a week. You are no longer eligible for company benefits.

Enjoy your "modern" freedom.

Silver Savior's picture

Never understood the gig economy especially living in an overly expensive place like the Bay area or silicon valley. How does one go without knowing how much work they will get or even if they will end up getting paid when they think they should? Talk about bullshit. 

I know it's for survival but damn that's always shitty not knowing well......Shit about where your next meal will come from. This is where Universal basic income would come in handy.

shovelhead's picture

Sure,The guys who gave up the party life to train themselves to earn a living will be happy to pay for the slackers who never bothered.

That seems entirely reasonable.

Manipuflation's picture

What is this article about?  We should all be heading to Florida to help loot the place with blacklivesmatter.  Sorry, but it is true. 

JLee2027's picture

1099 is a HUGE ADVANTAGE over being an employee.  This commie lawyer needs to lose.

Pava's picture

What is Bordello test?

honest injun's picture

Are Prostitutes employees or contractors?

rockstone's picture

Didn't your mom tell you? She explained it to the rest of us.

honest injun's picture

Are Prostitutes employees or contractors?

any_mouse's picture

Paid on a commission basis by the pimp/madam. They pay rent for the room. The work product is negotiated between the john and the prostitute.

The pimp does not assign the john to a prostitute or vice versa. Does not specify the work product or project goals.

Their individual license indentures them to the pimp/madam that sponsored their license.

A taxi license in NYC worked the same way back in 1976 when I had one.

I would think contractor.

This 1099 vs W2 was settled way back in the late 90s with Microsoft and its 1099 "employees without benefits".

Silicon Valley tech firms love to signal virtue, except when it comes to the people who do the work for them that enables their billion dollar valuations.

ClickNLook's picture

Depends on what you ask them to do.

Pernicious Gold Phallusy's picture

If she's a dominatrix the payer is clearly not calling the shots.

Insearch's picture

Borello decision (CA) based on approx 20 questions which base your specific situation will leverage decision if your an employee or independent contractor in CA state courts.

haruspicio's picture

Already happened in UK. Found to be employees because they cannot work for anyone else. It is being appealed. Will be found to be contractors in the US, and if not will be appealed all the way to the Supreme Court.

kenny500c's picture

Nice to see these liberals having to pay all the taxes attendant to having employees, which these people clearly are. Payroll tax, health insurance, pensions, etc.

Then unionize these workers, we all know how much liberals love labor unions.

Then strike for higher wages and better working conditions, paid vacations, holidays, overtime, sick time, three months paid time off for the birth of a child, for starters.


ICValue's picture
  1. This is a good example of how the freedom to innovate can be stifled by the magic of words on paper.
Anteater's picture

Uber was never 'innovation' or 'disruptive technology'.

It's the same tired scam as being a MLM 'distributor'.

The only 'innovation' was partnering with GE Capital

to sell new cars to Uber drivers at book plus 8.75%.

And that's how we got to $1.4T in student loans too.

This is the Epoch of Great Looting. It'll be over soon.