UBER CONFUSED: UNDERSTANDING NZ’s WORKER CLASSIFICATIONS

The question of employee or independent contractor has become an area of increased debate in legal sphere and an area of growing confusion for businesses.  With the Employment Relations Amendment Bill now public, businesses have had their first chance to review National’s proposed answer to this confusion.

This article intends to explore the legal background that influenced the government to provide legislative clarification on the distinction between employees and contractors and whether the proposed “specified contractor” test (if enacted in its current form) is likely to provide the clarification and greater flexibility within the labour market that National hopes to achieve.

Why is it important?

Before we begin dissecting the above, it’s important to consider why the distinction between employee and contractor is important.

If it is determined that a party to a contract is an employee as opposed to a contractor, the gates open to an array of minimum employment standards. Employees rights and entitlement are protected under the Employment Relations Act 2000 (the Act), The Holidays Act 2003, Wages Protection Act 1983, and the Minimum Wage Act 1983.

From a business perspective, ‘employment’ comes with increased costs, including minimum wage, annual leave, sick leave and various other leave entitlements. Employees also have the right to raise a personal grievance for unjustified disadvantage or dismissal.

These costs can become very significant if it is determined that an employment relationship exists where previously the principal (the person engaging the contractor) has treated the arrangement as a contractor/principal relationship. This can mean ‘back paying’ multiple years of annual leave entitlement, sick leave and rectifying any instances where the employee was deemed to have worked for below the minimum wage. There’s also the potential for personal grievance claims as these issues are often raised alongside a grievance for unjustified dismissal.

The answer to the question of whether a party is an employee or contractor is of high stakes to both parties. Naturally, businesses want greater certainty as to the classification of their legal relationships and the consequences of that classification.

Whether a person is a contractor or employee is not determined by what is in the agreement between the parties or how it describes that relationship, although, that is a relevant consideration. Employment status is determined by applying the test outlined under section 6 of the Act. The court or Employment Relations Authority (the ERA) must determine the real nature of the relationship between the parties. In coming to this decision, the court or the ERA must:

1. consider all relevant matters, including any matters that indicate the intention of the persons; and
2. is not to treat as a determining matter any statement by the persons that describes the nature of their relationship.

Background

While this issue has been prominent since the Act was brought into law, it has come under increasing scrutiny due to the recent judgements of both the Employment Court and the Court of Appeal in E Tu Inc v Rasier Operations BV commonly referred to as the Uber case.

The authoritative case on the distinction between contractor and employee is Bryson v Three Foot Six Ltd [2005] NZSC 34, [2005] a case involving a model technician working on the Lord of the Rings trilogy.  As Bryson was decided 20 years ago, questions have been asked about whether it is still good law. Employment relationships with the increasing incorporation of technology, AI and flexibility have significantly changed over that time and matters such as physical presence in the workplace (or even the same country) are no longer a given.

In a landmark decision, both Courts (though for different reasons) concluded that the Uber drivers in question were employees of the Uber companies while engaged on the app. In reaching that decision both Courts applied the tests outlined in Bryson, despite that decisions’ age, both Courts were bound to follow Bryson, both Courts felt the tests outlined were flexible enough to stand the test of time. This article only refers to the Court of Appeal’s judgement.

Legal Test

The approach outlined in Bryson incorporates three common law tests to determine the true nature of the relationship:

1. Control – how much control does the principal have over the contractor
2. Integration – the extent to which the contractor is “part and parcel” of, or integrated into, the organisation.
3. Fundamental test – is the contractor carrying on business on their own account or are they working in the principal’s business.

These tests are applied to the specific facts of each case; it can therefore be difficult for parties to predict with absolute certainty as to the true nature of their legal relationship. In applying the tests, the Court in Uber reaffirmed that the starting point for this examination is the written contract between the parties, the Court then examined how that relationship worked in practice and whether the individual is properly characterised as an employee or contractor.

In short, the tests can be briefly summarised as:

Control: The greater the actual control exercised on an individual the more likely it is that the true nature of the relationship will point toward employment. The court or ERA will consider among other things, whether the principal has the power to control when or how work is undertaken and whether the individual can subcontract that work. Conversely, the freer a contractor is as to how and when they conduct their work, the less likely an employment relationship is present.

Integration: The more an individual is integrated into the workplace the more this factor will point to the existence of an employment relationship. Matters such as whether the individual is required to wear a uniform, how they are represented to third parties such as holding a position in the company or how a reasonable third party would perceive them and whether the work they undertake is integral to the business are factors considered relevant by the courts and the ERA.

Fundamental test: this test largely considers the contractor’s ability to make profit from the arrangement, including their freedom to contract with other organizations during the engagement. This test somewhat overlaps with the control test. Its focus however is whether the contractor can truly be said to be in business in their own account, has the power to negotiate the terms of their agreement, to undertake the work as it wishes in order to maximise its profits and the ability to explore other ventures.

The Court of Appeal – Uber Judgement

In applying these tests, the Court of Appeal held that Uber had a high level of control over the drivers in question while they were logged in to the app, through Uber’s ability to remove the driver from the app, control how they were paid and full discretion to resolve any customer complaints.

The drivers were integral to Uber’s business and were the public face of the Uber brand and identified themselves as Uber drivers. The Court held that so far as the public are concerned, the only tangible manifestation of Uber in New Zealand is the drivers. While the Court determined the drivers were integrated into the Uber business the drivers were not so integrated as to strongly point to an employment relationship.

In applying the Fundamental test, the Court held that this strongly pointed toward the existence of an employment relationship. While not logged in the drivers were able to work for other businesses but when logged into the app Uber had total control over the driver’s ability to generate profit while engaged on the app, the route they take (therefore determining distance and fuel).

Crucially, the driver has no ability to develop goodwill with the customers of Uber, influence the quantity of work they receive or their revenue from that work except to the extent that Uber agrees. The drivers had no bargaining power and provided services on a take it or leave it basis. The Court held therefore that while logged into the app it could not be said that the drivers were operating a business on their own account.

National’s proposed ‘specified contractor’ test

A worker is classified as a specified contractor when—

• there is a written agreement that specifies the worker is an independent contractor.
• the worker is not restricted from working for others.
• the worker is not required to be available to work certain times or days or for a minimum period.
• the worker is able to sub-contract the work.
• the business does not terminate the arrangement for not accepting an additional task.

It will remain to be seen whether the above test creates any more certainty regarding the legal status of a contractor or employee. On its face, it would create certainty for parties that contract with one another on a very independent basis, such as Uber drivers and other gig economy workers.

However, for many small to medium-sized businesses the above test (assuming it remains as drafted) is unlikely to provide any greater clarity in many cases unless they significantly change the way in which they engage contractors. Certain contractor arrangements may justifiably provide that services are performed at certain times or days and because of the nature of the engagement or the specific expertise and knowledge of the contractor, subcontracting may also be impractical. Many businesses may consider changing the way they contract with contractors but changing the engagement so drastically may in some cases undermine the purpose for which they are engaging the contractor in the first place.

As drafted it appears that this change to the Act is unlikely to provide greater certainty on the question of contractor or employee for many businesses in New Zealand. However, the test would appear to create greater certainty of the employment status of many gig economy workers and businesses that engage contractors at arm’s length. Many businesses will therefore still need to apply the criteria considered in Bryson when determining the appropriate label for its engagement for individual parties. We note that the Uber decision has been appealed and is due to be heard by the Supreme Court in July 2025, the Supreme Court is not bound to follow Bryson, they may also take a different view on the facts of case.

Here at Wakefields Lawyers we have a wealth of experience in advising on these matters. If you would like assistance in drafting employment agreements, independent contractor agreements or advice on a current contract, contact an experienced team member at Wakefield’s Lawyers today on (04) 970 3600 or info@wakefieldslaw.com.

• Tom Speight (Senior Solicitor)