Uber Drivers were Employees, not Contractors

The Court of Appeal ruled against Uber in August 2024, after reviewing the substance of the contractual rights and obligations between the ride-sharing platform and four drivers. The Court of Appeal ruled that various aspects of the written agreement were merely window-dressing and did not reflect reality. Fares were determined by Uber, it was impractical for drivers to switch between apps, and repeatedly declining requests to drive resulted in being logged out of the app.[i]

Justices Goddard, Ellis and Wylie reasoned that while a driver is logged into the driver app, they have no opportunity to establish any business goodwill of their own.

"Or to influence the quantity of work they receive, the quality of the work they receive, or their revenue from that work except to the extent that Uber agrees to give them some preference in relation to access to ride requests, information about rides, or supplementary payments," they said. [ii]

This ruling gave the four drivers employee benefits such as leave entitlements, minimum wages and holiday pay. Uber plans to appeal to the Supreme Court, while the drivers’ union is preparing to lodge claims against Uber on behalf of its other members.

Proposed Contractor Gateway Test

In September 2024, Workplace Relations and Safety Minister Brooke van Velden announced a change to the Employment Relations Act[iii] which would give a gateway test of whether a person is a contractor. If one or more of these factors are not met, then the existing tests would apply. As the announced changes are not yet enacted, we don’t know whether the proposed changes would assist in cases like the Uber decision, but we do hope that it will clarify the situation for affected parties.

The proposed gateway test refers to written agreement, freedoms to accept other work, determine their own hours and decline work. It is very similar to the current tests which are developed from case law but appears to be more prescriptive to make it easier to confirm that a contractor relationship exists.

Written Agreement

Does the written agreement specify the worker is an independent contractor?

No Restriction on Other Work

Does the business restrict the worker from working for another business, including competitors? Contractors would be free to work for other businesses. This could be an interesting challenge in some industries, if your worker is also doing similar work for your opposition! 

Days and Times Not Specified

Does the business require the worker to be available to work on specific times of day or days, or for a minimum number of hours? Can the worker sub-contract the work? Contractors would be able to determine the days and hours they are available to work.

Able to Decline Work

Can the contractor decline work without fear of termination of engagement? Contractors would have the flexibility to make themselves unavailable for a project.

Current Contractor Test

If one or more of the above gateway tests are not met, the current tests apply. They are summarised under headings of intention, control vs independence, integration and fundamental/economic reality. [iv]

Intention

The parties would refer to the wording in their written agreement. A contract for services for a contractor would not include holiday pay or leave entitlements.

Control vs Independence

A contractor usually has control over the location, time and how they work, with discretion over their hours of work and availability. They can usually work independently.

Integration

A contractor is less likely to be integrated into the business organisation, the way an employee is. They often provide their own equipment and are paid per project rather than a strict hourly rate.

Fundamental / Economic Reality Test

A contractor is in business, setting their own fees, paying taxes, ACC, engage others to work for them and advertising. They can work for multiple principals at one time. They take on the financial risk and can profit from a project.

It’s Important to Get It Right

If you engage a worker as a contractor, and they turn out to be an employee, you could find your business owes them leave entitlements, holiday pay, ACC, sick leave and other benefits. Make sure that you get updated legal advice when preparing and entering into service contracts.

While we hope the legislative changes provide some clarity for contractual situations, we don’t yet know if the final law will prevent further issues arising like the Uber case. The Uber case shows that any contract you enter into should not just be window-dressing, as the Courts are willing to review the economic reality between parties.

-         Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

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An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact your legal or HR adviser or the author.

  [i] https://www.dentons.co.nz/en/insights/articles/2024/august/27/uber-loses-appeal-four-uber-drivers-are-employees-not-contractors

[ii] https://www.rnz.co.nz/news/business/526188/court-dismisses-uber-s-appeal-arguing-drivers-are-employees-not-contractors

[iii] https://www.beehive.govt.nz/release/increased-certainty-contractors-coming

  [iv] https://www.employment.govt.nz/starting-employment/types-of-worker/employee-or-contractor