When contractors are actually employees – The Uber case and its implications

For business owners, the recent ruling by the New Zealand Court of Appeal on Uber drivers highlights a crucial message: when engaging people as contractors, it's not just the contract label that matters — how the working relationship functions in practice is key. If a contractor is treated like an employee, with significant control exerted over their work and integration into the business, the contractor will 'at law' likely be an employee, and getting this classification wrong can be and often is expensive. Understanding and correctly applying the criteria is essential to avoid legal and financial repercussions.

The multi-billion dollar global rideshare company Uber has lost a landmark appeal in New Zealand, with the Court of Appeal affirming that the Uber drivers concerned in that litigation are to be treated as employees, rather than contractors (despite having been hired as contractors).

Background - The 2022 Employment Court decision and the Court of Appeal's judgment

In 2022, the Employment Court delivered a judgment that fundamentally altered the employment landscape for Uber drivers. The Court found that these drivers were employees and were therefore to be afforded with the ordinary employee rights and entitlements regarding pay, leave entitlements, protection from unjustified disadvantages and dismissals, etc. In effect, the Employment Court ruled that Uber got classification of the drivers as independent contractors wrong.

Uber then turned to the Court of Appeal to have the Employment Court’s decision overturned. Whilst the Court of Appeal did not agree with the Employment Court's methodology as to how it arrived at finding that the Uber drivers, the Court of Appeal, in its long-awaited decision this week, still arrived at the conclusion that the drivers are employees, and it thereby dismissed Uber’s appeal.

The framework for determining employment status

The question as to whether a person is engaged as an independent contractor or employed as an employee is to be answered by identifying the "true nature" of the relationship, and that, in turn, is to be determined by applying the following tests:

• The intention of the parties – as may be reflected by the (written) terms of the parties' agreement and other relevant documentation
• The control test – which considers the degree of control exercised by the company and the degree of independence of the individual
• The integration test – which considers whether the work performed by the individual is fundamental to the company and how integrated the worker is in the business and its operation
• The fundamental test – which considers whether a person is effectively working on their own account (or is economically fully dependent on the company).

In applying this test, the Court of Appeal found that the Uber drivers in question were employees, in that they had little to no control over the way work was performed (i.e., there where, when, and how of working as well as pricing), they were integrated in Uber's operation and overall business model, and they were economically dependent on Uber and had little to no business good will on their own. As far as their written contracts (which had been drafted and provided by Uber with little to no bargaining) stated that the drivers were independent contractors, the Court of Appeal dismissed this as 'window dressing' and held that this was not determinative (thereby reinforcing section 6 of the Employment Relations Act 2000).

Implications and where to from here?

The Court of Appeal’s judgment only applies to the particular Uber drivers who were involved in these proceedings. Yet, it may likely be the 'bottle opener' for other Uber drivers as well as other persons who operate in similar ways. It is fair to say that New Zealand's gig economy has been and continues to watch this space closely. Unsurprisingly, Uber may challenge the judgment to the Supreme Court, but we will have to wait and see.

Notably, staying true to their coalition agreement, the government is considering statutory changes to change the law to provide legal certainty to businesses and individuals by amending the Employment Relations Act 2000 to the effect that a contract stating that parties are principal and contractor would be conclusive as to the nature of their relationship. This would not be anything new. For example, such mechanics already exist in relation to real estate agents. Again, we will have to wait and see whether such statutory changes will eventuate.

In the interim, businesses are well advised to carefully and continuously assess and review their relationships with contractors, particularly where these relationships may be long-standing and engagements may be frequent and regular. Bear in mind, relationships may change over time and this may come with significant legal implications. Getting this right is crucial, in that getting it wrong will come with significant legal and financial risk. All too often, we have seen these risks materialising, costing businesses significant time and money.

Do not hesitate to reach out to us to discuss your needs and to let us help you navigate potential or actual disputes with contractors regarding their status.

Michael Whitt

Email: mwitt@mcveaghfleming.co.nz

DDI: 09 379 7611

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