Employment law issue of contractor vs employee catches a second ride with Uber

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The question of what makes someone an employee is in the news yet again, thanks to a second Uber challenge – this time by unions E tū and First Union, whose joint claim on behalf of multiple drivers seeking a declaration that Uber drivers are employees has just been heard in the Employment Court.

This issue has been litigated over and over in recent years. Construction workers, taxi drivers, medical practitioners, painters, salespeople, couriers, and gardeners are just some of the roles in respect of which it has been argued – successfully and otherwise – that a worker was wrongly classified as a contractor.

The legal definition of “employee” is currently found in section 6 of the Employment Relations Act 2000 (the Act), which states, amongst other things, that the “real nature of the relationship” must be considered. However, as the long list of roles above shows, this is easier said than done.

To some extent, case law has assisted in informing the factors which decide the “real nature of the relationship” and therefore what an individual’s employment status really is. In 2005, the Supreme Court found in Bryson v Three Foot Six Ltd,[1] that the Court or the Authority must consider:

  • The written and oral terms of the contract, usually containing indications of common intention as to status;
  • Any divergences from those terms and conditions in practice;
  • Features of control and integration, and whether the contracted person has been effectively working on his or her own account (the fundamental test – aka the economic reality test); and
  • The way the parties have actually behaved in implementing their contract.

More recently, the Employment Court in Leota v Parcel Express Ltd [2] noted that the primary issue is often whether a worker serves his or her own business or someone else’s. It acknowledged that “…the factors relevant to an assessment may vary from case to case including in terms of weight, [but] the most common questions can usefully be summarised, along with the direction in which an affirmative answer tends to point”. These “common questions” were outlined in a table of “indicia” and included considerations such as: the extent of control and integration in the business; any uniform required to be worn or livery displayed on a vehicle; whether the worker has the chance to make a profit; and who accrues business goodwill.

Ultimately, the key factor in Leota was that the worker (in this case a courier), could not realistically be said to be practising on his own account. There was a significant element of integration and control and he had “very limited opportunities to increase his remuneration, given the way in which the relationship operated, the continuous nature of the work, and hours…”  The Employment Court therefore had little difficulty concluding he was an employee.

However, despite the guidance provided by Bryson, Leota, and various other cases, it is clear from the Uber litigation that the issue remains live and uncertain. In fact, if successful, the current claim against Uber will overrule the earlier case of Arachchige v Rasier New Zealand Ltd & Uber BV, [3] in which an individual Uber driver’s claim that he was an employee failed.[4]

This second trip to the Employment Court by Uber has involved significantly more extensive evidence and arguments over a two-week hearing. Amongst other assertions, reporting states that the unions have claimed:

  • Uber’s system is designed to avoid minimum standards and entitlements. Specifically, the relationship was described by their lawyer as “one of servility, intense control, and oppressive provisions”.
  • The written terms of engagement are “difficult and obscure” and it is “completely impossible to imagine an agreement which could give Uber more control”.
  • Uber dictates fares and fees and can alter the contractual terms unilaterally by publishing an updated version of its app, which drivers must accept to continue using it.
  • Drivers can be terminated at any time.
  • Drivers are prohibited from contacting passengers after the trip, which denies them the chance to build their own businesses.
  • Detailed records of drivers’ exact movements are kept for years, and the rate at which they accept and cancel rides is closely monitored.
  • The drivers are “fully controlled and integrated into Uber’s business,” and Uber controls how its business is carried out and how much drivers are paid for each ride. This is not overcome because drivers could, in theory, be paid less, or could improve the profitability of their business through adopting cheaper business costs, which was the basis for the conclusion in Arachchige that drivers had control over what they earned.
  • Drivers represent Uber’s brand, not their own.
  • The reality of the way drivers work and their relationship with Uber is more akin to an employment relationship than that of a contractor or client.

As is to be expected, it is reported that Uber has responded fiercely, arguing:

  • There are multiple Uber subsidiaries and there are different relationships between them and the drivers, so the Court must focus on the details of each when making its assessment. If employee status is declared, it would be necessary to identify the specific employer in each relationship because obligations would flow from any declaration and certainty is required to fulfil these.
  • The level of control in Leota went far beyond anything exercised over Uber drivers, who are not “vulnerable” and can choose to respond to Uber’s incentives and promotions or not. Uber drivers can drive whatever car they like provided it does not exceed a certain age, can drive for other rideshare platforms, choose their own phone plan, and quit whenever they liked.
  • Uber’s standards are for “mutual benefit”.
  • Despite references to international case law, the international rulings have no bearing in the current case. It must be determined solely in relation to the definition of employee in section 6 of the Act.

Chief Judge Inglis’ decision is expected in three months, so for now it is a matter of ‘wait and see’. However, in the meantime, it is entirely possible that the issue will eventually become academic, based on the recommendations of the Tripartite Working Group (TWG) on Better Protections for Contractors.

It had long been anticipated by employment lawyers that a third category of workers would be introduced – typically referred to as ‘dependent contractors’ – as has been the case in some overseas jurisdictions. These are workers who are classed as self-employed contractors but who are effectively under the control of an employer.

Instead, the TWG has decided that defining a clearer boundary between employment relationships and contractor/principal relationships should be the focus. Further to this, it has made seven recommendations, including – first and foremost – a revised legislative definition of “employee”. Having regard to the indicia in Leota, the TWG report also refers to nine “design principles” to be used as the basis for constructing more detailed, objective, and prescriptive legislative requirements for worker classification. The aim of these principles would be to create an effective legal duty on ‘hiring entities’ to step through a robust decision-making process, guided by the legislation, when considering worker classification. Significantly, the intention is that the hiring entity will be responsible for making this decision correctly.

Other recommendations by the TWG are to develop a comprehensive package of guidance and support services to support better classification practices by organisations in the first instance. In addition, it is proposed that judicial determinations on employment status should be allowed to cover other workers performing similar work for the same hiring entity under similar contractual terms, which is not currently the case.

The final – and potentially most far-reaching recommendation – is that the definition of “employee” should be aligned across employment and tax legislation. The TWG proposes that this should include allowing for appropriate two-way information sharing between Inland Revenue (IR) and the employment regulator. Further, that the Government should explore ways to better use the tax system as an intervention point to encourage better classification practices e.g. requiring businesses to notify the IR of their worker classification decisions and certify the legal basis for them, as well as the potential to impose penalties for taking an unreasonable tax position.

It is not yet clear when these changes could be introduced as the next step is for the Government to develop and publicly consult on a policy proposal based on the TWG’s recommendations. However, addressing this issue has been a long time coming and this means it is safe to rely on the fact that these or very similar changes will happen in the not-too-distant future, so watch this space.

In the meantime, for more information on these issues – particularly those which can arise in relation to engaging independent contractors – or for specialist advice on any employment matters, please contact a member of our employment team.

Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

[1] Bryson v Three Foot Six Ltd [2005] NZSC 34

[2] Leota v Parcel Express Ltd [2020] NZEmpC 61

[3] Arachchige v Rasier New Zealand Ltd & Uber BV [2020] NZEmpC 230

[4] Uber round two – contractor or employee? | Duncan Cotterill | Lawyers New Zealand


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