Articles
Employee or contractor?
The boundary between employees and independent contractors has received significant media attention of late following the release of a Court of Appeal decision in August confirming that certain Uber drivers were employees for the purposes of New Zealand employment law.
The meaning of “employee”
An employee is a person who is employed to do work for wages or salary under an employment agreement. Employment status has been described by the Employment Court as “the gate through which a worker must pass” before they become entitled to access various entitlements, including the minimum wage, various forms of leave, holiday pay, and the ability to pursue a personal grievance. Contractors have no automatic entitlement to any of these things but as persons in business on their own account, they usually enjoy greater freedom and flexibility.
The test for whether a worker is an employee is set out in section 6 of the Employment Relations Act 2000. The focus of the inquiry is on the real nature of the relationship and not simply the label that parties choose to put on it. If called on to determine the question, the Court must look at the rights and obligations set out in any contract (written or oral), determine how those actually operate in reality, and then assess the real nature of the relationship against various factors, including:
- The extent of the principal’s control of the worker;
- The degree of integration of the worker into the principal’s business;
- The fundamental test of whether the worker is carrying on their own independent business.
The Uber case
The Uber companies argued that drivers were independent providers of transportation services and that Uber simply connected them via its software platform to people who wanted rides or to have food delivered from a restaurant. Uber denied that drivers were its employees or even contractors.
The Court of Appeal noted that the online contracts the drivers were required to sign were presented by Uber on a “take it or leave it basis” with no scope for negotiation. After reviewing the realities of the relationship, the Court found that although the contracts had been crafted to avoid the appearance of an employment relationship, many of the provisions designed to point away from employee status were simply window-dressing.
Although drivers retain a high level of control over whether they drive for Uber and over when and where they work, Uber exercises a high level of control over the way in which drivers work while they are logged into the app. The Court found that once a ride request is accepted, Uber controls “almost every facet of the manner in which the driver provides services to the rider, and of the payment for those services”.
In the Court’s view, the critical point is that a driver logged into the app has real no opportunity to influence the revenue that they receive, to establish any business goodwill of their own, or to influence the quantity or quality of the work they receive. Nor is there any opportunity for drivers to bargain with Uber for any of those things.
The Court concluded that in reality, the four drivers who brought the case could not be said to be carrying on their own independent transport service business. Accordingly, it dismissed Uber’s appeal against the Employment Court’s decision that the drivers were employees at the time that they were logged into the driver app.
Online platforms, the gig economy and the legislative response
Online platforms—such as Uber, Delivereasy, Trade Me and Airbnb—have become an omnipresent feature of modern life. Many platforms have also facilitated the rise of a gig economy in which people are increasingly engaging in many different freelance short-term jobs (the so-called “side-hustle”).
The Court of Appeal was at pains to note that there is no single legal model for what it described as the diverse ecosystem of service provision through online platforms, and said that whether or not participants in a particular platform were employees would require careful attention to the relevant contractual arrangements and to how they operate in reality.
The question of how the law should respond to these fairly significant societal changes remains unresolved. Overseas, earlier this year the European Union adopted the Platform Work Directive, while in the Canadian province of Ontario the Digital Platform Workers’ Rights Act will establish various minimum entitlements for gig workers from 2025.
Not long after our Court of Appeal delivered its decision, the government announced that reforms would be made to the Employment Relations Act for the stated purpose of providing greater certainty for contractors and businesses. A gateway test is expected to be formulated setting out four criteria that, if all satisfied, would mean that the worker would be considered to be a contractor. The proposed criteria are:
- the existence of a written agreement with the worker, specifying they are an independent contractor, and
- the business does not restrict the worker from working for another business (including competitors), and
- the business does not require the worker to be available to work on specific times of day or days, or for a minimum number of hours OR the worker can sub-contract the work, and
- the business does not terminate the contract if the worker does not accept an additional task or engagement.
The Minister for Workplace Relations and Safety stated that an Employment Relations Amendment Bill is expected to be introduced sometime in 2025 to establish the gateway test. The Bill will no doubt be the subject of significant comment and feedback from business groups and unions when it is introduced.
Read the Court of Appeal decision here and the Minister's announcement here.
Contact our employment team for advice on this and all other employment/workplace relations matters.