One of the most significant topics in employment law in recent times has been the employee / contractor distinction. If a worker holds the status of an employee, they enjoy a suite of statutory minimum employment entitlements, such as the minimum wage, protected hours of work, a right to paid holidays, and rights not to be dismissed. Contractors do not have any of these rights. In particular, determining whether a worker is an employee or a contractor has becoming increasingly difficult in the gig economy, where jobs are flexible, short-term and disjointed and often involve much more worker autonomy.

In this context, the Employment Court most recently held that four Uber drivers were employees, following an earlier decision examining the same legal framework which found that drivers were contractors. 

Court of Appeal ruling 

The Court of Appeal criticised the earlier Employment Court approach to the relevant test imposed by section 6 of the Employment Relations Act. It confirmed that the first step should be to look at the parties’ agreement governing the relationship, rather than considering whether the individual is vulnerable or suffering from an imbalance of power. However, that is not determined by the labels the contract uses – calling a worker a ‘contractor’ in an agreement will not decide the issue. The Court held the focus should be on the substance of the parties’ mutual rights and obligations, interpreted objectively. But when dealing with contracts which are offered on a “take it or leave it” basis, it will be much less likely that the labels and similar terms genuinely reflect the parties’ intentions about the real nature of the relationship. 

For the Uber drivers in question, there were multiple different contractual documents, all issued by Uber, including a driver agreement and Community Guidelines. The Court of Appeal determined that, on its face, the driver agreement did not appear to give rise to an employment relationship. However, in practice, various aspects of the written agreements were found to be ‘window-dressing’ which did not reflect the reality of the relationship. For example:

• While the driver has the right to charge less than Uber’s calculated fare, it was difficult to see why a driver would ever do so, in circumstances where they cannot build a relationship with particular riders or establish goodwill of their own. 
• The agreements were written to suggest that drivers operated their own business, making their own pricing decisions. However, in practice the drivers had no real-world control over the fares that they received — those fares were determined solely by Uber.
• The flexibility and choice that the driver agreement portrayed was largely illusory. The agreement permitted a driver to engage in ‘multi-apping’ (logging into the Uber app at the same time as making use of another ridesharing app). However, the Court found that multi-apping was not a realistic option for the drivers. 

The Court of Appeal also examined the level of control Uber exercises while a driver is logged into the app and found this to be much more consistent with an employment relationship during those periods. For example: 

• Drivers do not have the option of repeatedly ignoring requests: that will result in them being logged out, effectively terminating that period of engagement unless, and until, the driver logs in again. 
• Repeatedly declining requests will result in warnings, suspensions, and ultimately termination of the relationship. 

Furthermore, despite Uber drivers not wearing uniforms and their vehicles not having Uber signage, the Court found that drivers are the public face of the Uber brand, integrated into its business. 

Considering these factors, the Court of Appeal then considered whether the drivers were really in business on their own account. It held that when logged into the app, the driver has no opportunity to establish any business goodwill of their own, or to influence the quantity or quality of the work they receive, or the 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 have no opportunity to bargain with Uber for any of these. On this basis, they were held to be supporting Uber’s business rather than running their own.

Ultimately the Court of Appeal, unanimously, dismissed Uber’s appeal, holding that the real nature of the relationship between the four drivers and Uber was one of employment when the drivers logged into the Uber driver app. 

What does this mean?

While this decision only applies to the four Uber drivers in question, it has significant implications for gig workers, setting a precedent on the broad scope for employment relationships – they could exist whenever individuals choose to undertake short-term app-based work. It also confirms that other more traditional forms of contracting are potentially open to challenge. 

We could see an opening of the floodgates for Uber drivers and others to claim employee status in the courts. We understand that 900 Uber drivers who are members of First Union have filed proceedings. However, Uber has already issued a statement confirming its intention to appeal to the Supreme Court. Alongside this, the Government has plans for major reform of the legal position. It has been seeking feedback from key stakeholders on a plan to limit employment challenges from contractors who have explicitly signed up for an independent contracting arrangement, in line with the Coalition Agreement between New Zealand National Party & ACT New Zealand 

Whether Uber’s further appeal, or Government reform, will deliver legal certainty is an open question, but for the moment they generate continuing uncertainty. Businesses should be very conscious of the courts’ willingness to recognise employment relationships, examining both their existing and potential new contracting arrangements. 

This article was written with the assistance of Harriet Phillips, a Law Graduate in the Employment team.