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Business consequences of the Uber decision

Business consequences of the Uber decision

Business consequences of the Uber decision

Wednesday 22 March, 2023

What’s happened?

The Employment Court recently delivered a huge win for gig economy workers, declaring that the four Uber drivers who brought a case against Uber case were employees, not contractors. While Uber has appealed the decision, the current outcome serves as a stark reminder for businesses of the importance of classifying workers correctly.

Interestingly, this is the second time that Uber has come before the Employment Court on the same “employee or contractor?” issue. Last time however, the Court reached a different decision.

Should I be concerned?

If your business only engages employees, the decision is of little consequence.

If your business uses contractors, then don’t panic! This decision is a good reminder to re-examine your working relationships and check that contractors are not at risk of being deemed employees, in case of any challenge. This will help you protect your business and avoid any unintended employment liability.

What’s the difference between an employee and a contractor?

The difficulty is that there is no black and white answer. The Employment Relations Authority and Employment Court will look at a range of factors to determine the true nature of the relationship.

In essence, an employee is a person engaged under a contract of service (employment agreement). The employer generally has greater control over what they do, when and how it’s done, and provides the necessary equipment for their day-to-day work. They usually receive wages or a salary (occasionally piece rate or commission), and tax is deducted by the employer.

In contrast, a contractor is generally paid on invoice and takes care of their own tax obligations. They are engaged under a contract for services (independent contractor agreement) and have greater control over when they work and how the work is performed, will usually provide their own equipment, and be engaged in roles thataren’t an integral part of the business.

Independent contractors work for themselves, whereas employees work for the employer.

Is it a problem if my contractor is actually an employee?

If a worker engaged as a contractor is declared an employee, they will be entitled to the minimum employment standards including paid holidays, leave and the minimum wage. This can amount to a significant financial liability, particularly when the worker has been engaged incorrectly for several years and/or has been paid more than employees in recognition of a mistaken belief that they are not entitled to paid leave.

There are also differences in how employees and contractors can be lawfully terminated, which can give rise to a claim if a terminated contractor is later found to be an employee.

Being clear about the nature of the relationship and making sure that you’re not interacting with contractors as though they are employees is important, especially for organisations that rely heavily on contractors.

How can I be sure my contractors really are contractors?

The Authority and the Employment Court will apply a few tests and examine any other relevant factors to help determine what the ‘true nature of the relationship’ is. While none of these tests are determinant on their own, they do signal what the authority considers indicative of an employment relationship.

These tests include the: Intention, Control, Integration, Fundamental, and the totality, which have been outlined below.

  • The Intention test looks at what the parties’ intention for the relationship has been, including how it has been referred to and the type of contract entered into.
  • The Control test examines the level of control the business has over the worker. In employment relationships, employers tend to have a much higher degree of control over the worker.
  • The Integration tests focuses on the degree to which the worker is integrated into the business and whether their work ispart of day-to-day operations or more specialised and occasional.
  • The Fundamental test, also called the "economic reality" test, measures to what extent the worker could be seen to be working for themselves, rather than the business.

Lastly, does the totality of the relationship look more like an employment or contractor relationship?

The difficulty that the latest Uber decision has highlighted, is that there is broad scope in the application and weighting of each of these tests. To the extent that the same Court reached different outcomes in claims of the same nature made against Uber only a few years apart.

There had been plans for legal reform in this area, with a view to brining in a new legal test to determine who is a contractor and who is an employee, however this has been put on ice as part of Prime Minister Chris Hipkins’ second policy purge.

How can I protect my business?

Look at the working relationships that you have with your contractors and identify anything that could be indicative of an employment relationship. If you are concerned, seek advice and/or make changes to understand and reduce your risk. It’s worth undertaking this exercise regularly, as working relationships (as well as the law and how it is applied) can change over time. Seeking advice and resolving potential problems early could save you a lot of money later.

Our thanks to Summer intern Luke Daniels for his contribution towards this article.

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