Court of Appeal Confirms Uber Drivers as Employees and new proposed ‘Gateway’ test for contractors
The Court of Appeal has recently upheld a previous Employment Court decision classifying four individual Uber drivers as employees. [Rasier Operations BV v E TŪ INC [2024] NZCA 403].
The decision marks a significant shift in the platform economy landscape, likely reshaping the legal relationship between ride-sharing platforms and their drivers. The decision paves the way for Uber drivers to claim minimum employment entitlements and affords them the protection of implied obligations contained in every employment relationship.
The decision may also have wider implications across other industries and contracting relationships. The Uber drivers in this case could pick and choose when and where they worked, provided their own equipment (vehicles and mobile phones), did not wear a uniform nor have a central location of work, were required to meet their own taxes and could work for other organisations including competing ones. On the face of it, all those factors suggested a contractor relationship. So why were they deemed to be employees?
Background
The Court of Appeal was tasked with deciding whether four Uber drivers were correctly classified as employees, as had been held by the Employment Court in 2022. Uber brought the appeal, not only concerned that the drivers were deemed to be employees, but that the Employment Court had taken a ‘novel approach’ in its finding and had misapplied the relevant test.
Interestingly, the Court of Appeal did find the Employment Court had misapplied the law when it placed significant emphasis on a worker’s vulnerability, and on who benefitted from the relationship, when deciding whether they were employees. The Employment Court was also criticised for not applying close enough attention to the contractual terms between the parties. Despite this, the Court of Appeal upheld Employment Court’s decision, that the Uber drivers were employees. It did this by first considering the contractual terms between the parties; and then applying the three existing common law tests of:
• Control test;
• Integration test; and
• The fundamental test.
Key Aspects of the Court’s Decision
The Agreement Between the Drivers and Uber
The contractual arrangement and terms were dictated by Uber, within complicated and sophisticated contracts on a ‘take it or leave it’ basis. There was no room for negotiation on any terms, fees or pricing between the drivers and Uber. The agreement also allowed Uber to unilaterally change terms and conditions, requiring immediate acceptance from drivers before they could recommence work.
The Court found that a thorough review of the contractual terms between the parties demonstrated a high level of control and subordination between Uber and its drivers.
Control test
The Court found that the drivers had no control over setting the fare or determining the calculation methodology. Uber decided the cost of each trip and charged that to the ride. Uber also retained the right to change the fare calculation at any time, to review or cancel a fare, and to determine a full or partial refund to a rider.
The fact drivers could exercise flexibility as to when they worked was not a strong factor in favour of a contractor relationship, given ‘flexibility’ is now common amongst employee roles as many workplaces have evolved from traditional ways of ‘working’. However, the drivers were found only to be employees when they were ‘logged on’ to the Uber app. This is because it was when drivers were logged in, that Uber exercised a high degree of control over them. While logged in, drivers could not repeatedly ignore requests, as it resulted in being logged out, and effectively terminated the period of engagement. Drivers could not repeatedly decline requests as this resulted in warnings, suspensions and ultimately termination of the relationship. Once a ride was accepted, Uber controlled almost every facet of the manner in which drivers provided services to the rider and the payment for those services.
The Integration Test
This test assesses the extent to which the individual is ‘part and parcel’ of or integrated into the business.
Although the Court acknowledged that drivers did not wear uniforms, did not have Uber signage on their vehicles, did not congregate in the same place of work together, provided their own equipment, met their own driver related costs and had no obligation to work for Uber at any given time; the Court found the drivers were integral to Uber’s business – without them, Uber would have no service to offer to the public.
The fundamental test
The fundamental test considers whether the worker is carrying on business on its own account.
The Court acknowledged there were several factors consistent with Uber’s argument that drivers operated their own business. The drivers decided when and where to work, provided their own car and phone, and met costs such as insurance and data. Drivers could also increase their net earnings by managing costs relating to the ownership and running of their vehicles, and could improve their earnings by responding to Uber’s incentive structure and working in places and at times where ‘surge’ pricing was on offer. Yet the Court found that it was “tolerably clear that drivers are 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 risks.” [229].
Factors against drivers being in business on their own account were that Uber unilaterally determined the terms of the agreement and modified these unilaterally. It exercised full control over the terms on which drivers provided transportation services while logged into the app, particularly pricing, the agreement was personal to the driver, they could not employ anyone else to provide the relevant services. The fact the drivers had to provide their own vehicles wasn’t given much emphasis as the Court found these were items of everyday personal use, rather than investment in specialised equipment to carry on a business. Perhaps surprisingly, the Court did not regard the fact that the drivers could work for other organisations (including a competing organisation) while they were not logged into the app, as being particularly important.
The critical points for the Court were that while logged into the app, the drivers had no opportunity to:
• Establish any business goodwill of their own
• Influence the quality of work they received; or
• Influence the revenue from that work.
And as such, they could not be deemed to be in business on their account.
Summary
This decision could have far-reaching consequences for the classification of contractor vs employee, in industries outside ride share and similar platform models. As such, businesses should be conducting a close investigation of their own deemed contractor relationships and getting advice before engaging in new contractor relationships.
Uber has indicated it is taking steps to appeal this decision to the Supreme Court. The coalition government has also put forward a proposal for the categorisation of contractors under the Employment Relations Act 2000. The proposal seeks to provide a gateway test for businesses to assess whether a person is an employee or a contractor. If the working arrangement meets all elements of this test, they will be considered a contractor. However, if one or more of the factors is not met, the existing test as exhibited in this recent case will apply. The proposed gateway test includes;
• Whether a written agreement with the worker specifies that they are an independent contractor; and
• The business does not restrict the worker from working for another business (including competitors); and
• The business does not require the worker to be available to work specific times of day or days, or for a minimum number of hours, or that the worker can sub-contract the work; and
• The business does not terminate the contact if the worker does not accept an additional task or engagement.
The government is pushing for this amendment to be introduced in the next year. However, in the wake of the above decision, Unions have urged the government to steer away from such reform.
Interestingly Australia’s ‘closing loopholes’ legislation which came into force on 26 August 2024, reverts from a ‘start of relationship’ test (what is agreed within a document between parties) to a ‘whole of relationship’ test (now closely resembling New Zealand’s current approach, where no single factor is determinative as to the real nature of the relationship).
We await the next instalment on this issue, and any impact on the rights and obligations for both businesses and workers, which may be affected by an appeal or legislative reform. In the meantime, it will be useful to apply the above tests and considerations to your own contractor relationships.
