Implications from the Court of Appeal decision that Uber drivers are employees not contractors

This month, the Government announced the introduction of changes to the Employment Relations Act that it says will provide greater certainty for contractors and businesses. The announcement comes after the landmark Court of Appeal decision released on 26 August 2024, which found that four Uber drivers were employees, not contractors [1].

Court of Appeal decision - Uber drivers are employees, not contractors

Four Uber drivers had sought declarations from the Employment Court that they were employees. Uber asserted that they were not. The Employment Court found that the drivers were employees, not contractors. Uber then appealed that decision to the Court of Appeal.

Although the Court of Appeal did not agree with the approach adopted by the Employment Court, ultimately, it reached the same conclusion; that the drivers were employees when they logged into the Uber app, not independent contractors.

The current legal test - What is the real nature of the relationship?

The current legal test to determine whether a worker is an employee is set out in section 6 of the Employment Relations Act 2000. Where employee status is challenged, the Employment Relations Authority or Courts must determine the real nature of the relationship between the parties. This requires considering all relevant matters including any matters that indicate the intention of the parties, and not treat as a determining matter any statement by the persons that describes the nature of the relationship.

The Court of Appeal's assessment in Uber

The Court of Appeal affirmed the leading authority on the application of the section 6 test, as set out in the Supreme Court decision in Bryson v Three Foot Six [3]. The Court of Appeal highlighted this required a two stage approach, which is:

1. Identifying the substance of the parties’ mutual rights and obligations as a matter of reality.
2. Determining whether those rights and obligations amount to a contract of service using the control test, the integration test and the fundamental test.

The Court of Appeal noted that an assessment begins with looking at the written terms and conditions that have been agreed to, with a focus is on the substance of parties’ mutual rights and obligations, interpreted objectively, rather than any labels. Also relevant in the assessment is any divergences from or supplementation of those terms and conditions which are apparent in the way in which the relationship operates in practice.

When applying the first stage in Uber, the Court noted that on the face of it, the rights and obligations in the Uber driver agreement did not appear to give rise to an employment relationship. For example, the driver agreement described the drivers as independent contractors. However, the Court’s review of the realities of the relationship confirmed that "the driver agreement had been crafted to avoid the appearance of an employment relationship and that many of the provisions designed to point away from employee status are ‘window dressing’ that do not reflect the realities of the relationship". For example, the agreement permitted a driver to engage in multi-apping (also log into another ridesharing app at the same time). However, the Court found that multi-apping was not a realistic option for the drivers.

Uber was found to have had unilateral control over various documents with contractual force and over day to day operation of the relationship in a manner and to an extent that rendered ineffective many of the rights that appeared to be reserved to drivers on the face of the agreement. The Court of Appeal found that Uber had a high level of control over the way in which drivers work while they were logged into the driver app.

When applying the second stage the Court of Appeal essentially found:

• Control test – (the degree of control the Principal exercises over the worker) Uber exercised a high level of control at times when a driver was logged in and that was consistent with an employment relationship.
• Integration test – (the extent to which an individual is part and parcel of an organisation). While the drivers did not have uniforms, have signage on their vehicles, or work at the same place, the drivers were integral to the business and without them they would have no services to offer to the public. (The integration test was not a strong indicator in this case).
• Fundamental test – (Are drivers carrying on a business on their own account?) Although drivers were required to provide their own phone and car and meet associated costs such as data and insurance, the Court found that drivers were not in business on their own account, making the types of decisions that an independent business operator would normally make and bearing the risks and enjoying the returns of those choices. Uber unilaterally determined the terms of the driver agreement and could and does unilaterally modify those. It exercised full control over terms on which the driver provided transportation services while logged into the app. While a driver was logged into the driver app that driver had no opportunity to establish any business goodwill of their own.

Following this outcome, there have been indications that Uber intends to appeal to the Supreme Court.

Other Uber drivers may also seek declarations from the Employment Court whether they are employees. 

Government announcement - proposed change to determining contractor status

On 15 September 2024, the Workplace Relations and Safety Minister Brooke van Velden announced upcoming changes to the Employment Relations Act that the Government says will provide greater certainty for contractors and businesses.

The Minister outlined that the amendments would provide a gateway test that a business could use when responding to a claim that a person is an employee and not a contractor. If the working arrangement in question meets the four factors set out in the test, then the person would be considered to be a contractor. If one or more of the factors are not met, then the existing test would apply.

The criteria for the proposed gateway test are:

• a written agreement with the worker, specifying they are an independent contractor; and
• the business does not restrict the worker from competing with another business (including competitors); and
• the business does not require the worker to be available to work on specific times or 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.

It is expected that an Employment Relations Amendment Bill will be introduced in 2025, therefore while it is not yet law, it may become law. 

What is the relevance and implications of the Court of Appeal's decision in Uber?

While the Court of Appeal's decision in Uber applies to the four drivers directly, it is relevant to businesses who operate with contractor workforces and also to independent contractors.

Whether a worker is an employee or contractor has significant implications as employees have a number of entitlements and protections under employment law. Entitlements include, for example, annual leave, sick leave, bereavement leave, public holidays, minimum wage, KiwiSaver, and rest breaks. Protections include for example the ability to bring a personal grievance i.e. for unjustified dismissal.

Modern working arrangements have created new issues within employment law. An example of this is the platform economy (the various commercial activities associated with platforms including both the provision of platform services and the provisions of goods and services using online platforms). The challenges for employment law are highlighted by the case of Uber, where the four employees choosing to undertake short-term app-based work were found to be employees by the Court of Appeal with consequential implications being that they and workers in similar arrangements seek the rights and protections afforded by New Zealand's employment law.

The Court of Appeal highlighted that these issues must be addressed under the legislation and currently that is section 6 of the Employment Relations Act. However, given the Government announcements we may see changes to that legislation. 

If the intended changes are implemented and the law amended to include the ‘gateway test’, this will have implications for businesses when considering worker arrangements and the terms of an independent contractor agreement. 

Currently businesses should be aware of the Court’s willingness to recognise employment relationships by considering the real nature of the relationship, i.e. how it is working in reality, rather than undue weight being given to the way in which the relationship may be described in writing as one of employee or contract status. It is important for businesses to consider and regularly review its written agreements along with how the relationship with a ‘contractor’ operates in practice. It would also be wise to keep in mind the potential upcoming changes when entering into agreements now.

The specialist Employment Law team at DTI Lawyers is able to provide advice regarding working arrangements including both with employees and contractors, and can be contacted by phone on 07 282 0174 or email [email protected]